By  Tue Nov 6, 2012

What to Do With a Windfall

Ian Collins / Flickr source

There may come a time in your life where you suddenly have more money than you know what to do with. This may come in the form of a lottery winning or an unexpected inheritance from a loved one. Whatever the reason for your financial windfall, one of the first major decisions you need to make is where to stash the cash.

There have been many headlines on television and in the newspapers about the curse of the lottery winners. People that come into large sums of money and do not make financially sound decisions are usually broke within a few years, left wondering what the heck happened. It is wise to not spend a dime of your windfall without first setting up a financial strategy. You may even consider hiring a financial advisor to help you sort through the many options you now have available to you.

Windfall Fundamentals

If you win millions in the state lottery, it will be a considerably different feeling depositing that check into your bank’s checking account than the hundred times you’ve deposited your three-digit paycheck. However, your bank’s savings and checking accounts may not be the ideal place to put your lump winnings or inheritance. The federal insurance for banks provided by the Federal Deposit Insurance Corporation offers limits up to $250,000 per depositor. While there is currently a provision as part of the Dodd-Frank Act where unlimited insurance for deposited funds over that amount is possible if money is placed in a non-interest bearing account, that provision is only an option until December 31, 2012.

There is also a network of financial institutions which participate in the Certificate of Deposit Account Registry Service, which offers services to those who need to deposit multi-millions of dollars into a bank account and receive federal insurance on the funds. The bank where your money sits will reinvest the funds into other federally-insured bank accounts in other banks. The benefit of this certificate of deposit program is the depositor only has to keep up with one bank and all money is federal insured.

Proactive Investing

The next consideration for windfall cash concerns investments. If you have no experience in investments, especially with much larger sums of money than you’ve ever had access to, it is wise to consult with a financial advisor who can guide your choices. You may want to consider protecting the majority of your wealth with safe investments and limit the amount of risk you have in your portfolio. A knowledgeable advisor will help you develop strategies suitable for your current financial needs as well as your future financial needs. Ideally you should stay active in the management of your money matters rather than entrusting someone to handle everything without your input.

No Rush on Spending

When you discover you have finally hit the lottery or are shocked by just how much Aunt Martha left for you in her will, the first thing to remember is there should be no rush in making decisions about your windfall. Ideally, you’ll want to protect it as long as you can until you have a strategy mapped out that makes sense to you. Just because you have the funds to do all of the things you’ve ever wanted to do in life does not mean you should rush into hasty decisions like buying a house for everyone you know. The more careful you are with your large chunk of cash, the longer it will last, and the more generous you can be in the long run.

Receiving a large amount of cash virtually overnight can cause so many problems. The phone will never stop ringing and ‘loved ones’ will come out of the woodwork. Everyone will start soliciting your help for their financial needs. It can be tempting to hand out $100 bills just because you can, but if you expect this windfall to truly set you for life, you need to practice patience and good judgment.

Trust Issues

Be sure to consider the many ramifications that go along with large sums of money coming into your life in addition to the personal crisis it can bring. You will need help with the tax accounting of your windfall, the strategizing of your windfall, and the proper investment of your windfall if you are overwhelmed. Selecting the right person for those tasks is half the battle. An attorney, a financial planner, and a tax accountant should be selected only after you have researched their credentials and experience. You may be solicited by many professional types who only have their best interests at heart. You must be ready to protect yourself, your family, and your money by selecting those who are trustworthy and genuinely interested in your welfare.

Many people that inherit large sums of money through lottery winnings or otherwise make the fatal mistake of stepping aside, letting everyone else handle their financial affairs. The best way to protect what you have is to educate yourself and not solely rely on the advice of others to grow and protect your windfall. Learn the fundamentals of money management, investing, and the like so you can be assured you are making the right decisions now and in the future.

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