The Jackpot Problem: A Wise Guide to Windfalls
Coming into a big sum of money might seem like the perfect problem to have. But at the risk of throwing cold water at you, it’s also a big responsibility. It’s also perfectly O.K. to be nervous or maybe even scared that you’ll do exactly the wrong thing with your big bonus, inheritance or tax refund.
But take a deep breath. It’s actually not that complicated.
We talked to two Certified Financial Planners™ to find out just how they advise clients who are suddenly in the money—and then we distilled their insight into a short and sweet step-by-step windfall guide.
1. Get Grounded
“My first recommendation would be not to actually look at it as a life-changing event—regardless of the magnitude of the windfall,” says David Blaylock, a Certified Financial Planner™ with LearnVest Planning Services. “Lottery winners receive millions of dollars, and they can still go through a bankruptcy. And you hear about sports stars who blow through their money all of the time. So approach a windfall as something that can remove pressure from your current situation instead.”
Wendy Weaver, a Certified Financial Planner™ at FBB Capital Partners, agrees. “Getting an inheritance or any kind of a windfall doesn’t change you,” she says. “If you didn’t manage your money carefully in the past, just because you come into a windfall doesn’t mean that you’ll be good at managing money going forward.”
In short: Your windfall won’t solve all of your problems automatically—no matter how big it is. But if you have the right attitude, it can certainly help solve a few! “Look at the windfall as a part-time job or business that you’re running and need to handle responsibly,” Weaver says.
Now, on to your new part-time job responsibilities.
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2. Put It in a Safe Place
“Above all else, you should never leave that money in your checking account,” says Blaylock. “Because eventually it will probably get spent, and you may not have made any progress on your financial goals. I see that very, very often.” Indeed, it can be hard to say no to a second cocktail—or even a trip to Vegas—if every time that you take out cash you see a hefty balance at your fingertips.
While Weaver admits that you typically won’t make a big return on a savings account, with interest rates being so low, “it may be worthwhile to sacrifice a little bit of return to take the time to make thoughtful decisions about the windfall,” she says, “rather than put it at any sort of risk.”