How to Manage a Financial Windfall
Receiving a financial windfall—whether from an inheritance, lottery winnings, a legal settlement, or a business sale—can be life-changing.
It’s exciting and extremely overwhelming rolled into one. it can also be overwhelming.
Without careful planning, many people find that a windfall can disappear just as quickly as it arrived.
This then leaves them with financial stress and regret.
Here, I’ll discuss how to manage a financial windfall wisely.
In turn, ensuring that it provides long-term benefits and aligns with your financial goals.
Pause and Take a Breath
Give yourself a break. Before making any major decisions, give yourself time to absorb the news and adjust to the idea of having the money.
It’s tempting to make large purchases or give money to friends and family right away, but impulsive decisions can lead to financial mistakes.
Taking a step back allows you to think clearly and avoid decisions that might harm your future financial security.
What to Do:
- Place the funds in a secure, low-risk account, such as a savings account while you plan and consult a certified financial planner
Pay Off Debt
One of the most impactful uses of a financial windfall is paying off existing debt.
High-interest debt, like credit card balances or personal loans, will erode your financial well-being over time.
Eliminating debt not only improves your financial health but also frees up more of your income for saving and investing.
Prioritise:
- High-interest debt: Pay off any debts with high interest rates first, as these cost you the most over time.
Paying off high interest crappy debt not only provides peace of mind but also gives you greater control over your financial future.
Establish an Emergency Fund
Before making any major financial moves, make sure you have a solid emergency fund.
A typical recommendation is to have three to six months’ worth of living expenses or net after tax income saved in a liquid, easily accessible account.
This fund serves as a financial buffer in case of unexpected life events, such as job loss, medical emergencies, or car repairs.
Key Points:
- Ensure your emergency fund is separate from other investments and accounts and is in a hard to get to account, i.e. no online banking access!
Invest for the Future
Once your debts are paid off and your emergency fund is in place, it’s time to start thinking about long-term wealth building.
One of the best ways to grow your windfall is to invest it in a diversified portfolio. Investing can help ensure that your windfall continues to grow and provide financial security over the long term.
Important: Work with a certified financial planner.
Not because they want fees.
Because they will create an investment strategy tailored to your risk tolerance, goals, timeline and personal values.
Set Short- and Long-Term Goals
A financial windfall provides a unique opportunity to think about your short- and long-term goals.
Whether you dream of traveling the world, buying a new home, starting a business, or retiring early, now is the time to plan how your newfound wealth can help you achieve these dreams.
How to Plan:
- Short-term goals: These might include paying for a holiday, a home renovation, or starting an emergency fund. Allocate a portion of your windfall to these immediate desires.
- Long-term goals: These could be buying a home, funding education, or preparing for retirement.
Avoid Lifestyle Creep
One of the biggest mistakes people make after receiving a financial windfall is succumbing to lifestyle creep.
Lifestyle creep is the tendency to increase spending as your income or wealth grows.
It’s easy to start buying luxury items, upgrading your home, or taking lavish holidays, but without proper planning, these expenditures can quickly erode your windfall.
How to Avoid:
- Stick to a budget: Even with a windfall, creating and following a budget is essential to maintain control over your spending.
- Make thoughtful purchases: If you want to enjoy some of your newfound wealth, prioritise purchases that truly enhance your life, rather than spending impulsively.
- Live below your means: Continue practicing financial discipline to ensure your windfall lasts.
Consult with Professionals
Managing a financial windfall is complex, and tax implications can be significant.
That’s why it’s critical to consult with professionals who can guide you through the process and help you make informed decisions.
Who to Consult:
- Financial planner: A certified financial planner (CFP) can help you create a strategy to grow your windfall while minimising risk.
- Tax advisor: Windfalls often come with tax obligations, such as estate taxes, capital gains, or income taxes. A tax professional can help you navigate these obligations and develop strategies to reduce your tax burden.
Summary
In conclusion, a financial windfall can open the door to tremendous opportunities, however, only if managed wisely.
By taking a measured, thoughtful approach, you can pay off debt, invest for the future, and achieve your personal goals without falling into common pitfalls like overspending or poor investments.
Consulting with professionals, setting goals, and staying disciplined are key steps to ensuring that your windfall benefits you—and potentially future generations—over the long term.
How We Help
Have you or are you about to come into a financial windfall?
This year alone we’ve helped a number of new clients to plan, protect and grow the various windfalls they’ve seen, ranging from inheritances to lottery wins.
The result is financially, there is no stress as they know they have a plan and an overall strategy.
This is particularly important at a time, for example, when the windfall is an inheritance received following the passing of a loved one.
Get in touch
Email us at info@fortitudefp.ie or click below to schedule an introductory call at our expense.
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Our blog posts are intended for information purposes only and should not be interpreted as financial advice.
You should always engage the services of a fully qualified financial planner before entering any financial contract.
To discuss engaging the services of Fortitude Financial Planning please email us at info@fortitudefp.ie.
Fortitude Financial Planning Ltd will not be held responsible for any actions taken as a result of reading these blog posts.
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