By Joe Gross, CDFA®
If you’ve found yourself with an unexpected windfall, you may be wondering what you should do with it. Here are 5 smart moves you can take today to set you (and your newfound wealth) up for success.
1. Take A Moment To Breathe
When you receive a sudden windfall, you’re overcome with all sorts of emotions. This type of overwhelm can lead you to make irrational decisions you may later regret.
For at least the first 30 days (if not longer), refrain from doing anything with the money. Just take a step back and breathe. Use this time to reflect on potential ways you may want to use your windfall—but don’t make any decisions just yet.
2. Talk It Over With An Expert
Once you’ve taken some time to breathe, your next step should be finding a trusted financial advisor who can help you use your newfound windfall to reach your goals. The right financial advisor can help you:
- Create a cash flow plan for your money to ensure it lasts for years to come
- Make smart investment decisions that align with your long-term objectives
- Create an estate plan that will protect your windfall if something were to happen to you
- Minimize the amount of taxes you could potentially pay on your money
3. Think Through Tax Implications
There’s a very good chance you’ll have to pay some taxes on your sudden windfall. But when you have to pay these taxes and how much depends on what exactly you received.
For example, if you inherited a 401(k) from your dad, you likely have 10 years to fully deplete it—and pay ordinary income tax on all your withdrawals in the process. (1) If you received a cash lump sum as part of your divorce settlement, your ex may be on the hook for those taxes instead of you (because you’re the recipient).
The best way to know if you owe taxes and how much you can expect to pay is to meet with a trusted financial professional who can help you evaluate your situation. If you do owe taxes (which you likely will in most cases), they can also help you pinpoint any strategies you could use to mitigate your liability.
4. Revisit Your Financial Goals
What were some of your financial goals before you received this sudden windfall? Was it to retire early? Pay off your mortgage? Create college funds for all your grandkids? Buy a vacation home? Start your own business? Grow your net worth to that next million-dollar mark?
Take a moment to revisit your short-term and long-term goals. See if your newfound money could help you accelerate your progress toward reaching them.
5. Beware Of People With Bad Intentions
You’d be surprised by how many long-lost friends, family members, and acquaintances will come out of the woodworks when they hear you’ve received a sudden windfall. It may sound innocent at first—with people congratulating you on your newfound money. But beware of anyone who starts asking for cash.
If your sudden windfall is public knowledge—either because of divorce, an estate settlement, lottery winnings, or anything else—you’ll want to also have your guard up against potential scammers who may be looking to swindle you out of your wealth.
If this feels overwhelming to you, find a team of financial professionals who can help you keep your guard up and thoroughly vet anyone you want to help out.
How We Help
The key to being smart with an unexpected windfall is to not make any sudden moves. Take some time to think it through and decide how you can use this money to propel you one step closer toward your goals.
At JGP Wealth Management, we specialize in helping high-net-worth individuals manage their financial affairs so they can focus on what’s most important in life. We’ve worked with many clients who have received sudden windfalls either as a result of a divorce settlement or inheritance. In these instances, we’ve helped our clients manage this new windfall and use it to build a better life for themselves.
If you’d like to partner with a financial planner who understands your unique needs and inspires you to be more confident in your financial decisions, contact Joe today at 503-446-6450 or firstname.lastname@example.org.
Joe Gross is first vice president and senior financial advisor at JGP Wealth Management, an independent, fee-based financial advisory firm in Portland, Oregon. With over 25 years of experience under his belt, Joe is passionate about putting his clients first and helping them stay focused on their financial goals, inspiring confidence in their future. As a Certified Divorce Financial Analyst (CDFA®), he specializes in addressing the unique financial issues of divorce. Joe is known for his tenacity to keep clients on track toward their dreams and for his attention to detail, which is second to none! His clients know that nothing will slip through the cracks when working with Joe!
Joe graduated from the University of Arizona with a bachelor’s degree in finance. Outside of work, he enjoys being involved in the community and is actively involved with organizations close to his heart. Joe is a former president and current board member of the ALS Association of Oregon and Southwest Washington and a long-time member of The Multnomah Athletic Club. In his free time, he enjoys fly fishing, spending time with his family, and cheering on his alma mater, the University of Arizona. To learn more about Joe, connect with him on LinkedIn. You can also watch his latest webinar on How To Pick Up The Financial Pieces After Divorce.