Wouldn’t it be wonderful to wake up tomorrow with tons of extra money in your bank account? Perhaps you’ve just experienced a windfall in the form of a big bonus from your job or a substantial inheritance from your favorite aunt. Unexpected financial windfalls do happen. Therefore, if you’re lucky enough to receive one, make sure you have a solid plan in place to spend it wisely. Basically, there are four different courses of action you can take with money: spend it, invest it, share it, or save it.
Consider the following five ways to make the most of your windfall and to avoid any pitfalls that may cause you to lose it.
1. What About Taxes?
Based on how you actually came by your windfall, it’s likely that it’s subject to tax. One exception, however, may be an inheritance, but only if it’s below the tax exemption of $5 million for each person. Therefore, any amount exceeding that figure is vulnerable to a 40 percent levy.
2. Create a Financial Safety Net
One smart way to use part of your new windfall is to wisely shore up your financial security. Create a financial safety net that easily covers at least six months of your living expenses should you lose your job or need extra money for emergency household repairs. Also, if you’re swimming in debt, settle the score by paying everything off and wiping the slate clean.
3. Plan Ahead
After you’ve paid off your debt and put some money back for emergencies, consider investing some of it by adding it to your retirement account including a Roth IRA or to your portfolio.
4. Mindfully Splurge
It’s okay to spend some of your money on yourself, family members, and friends, but remember how incredibly easy your spending spree can get out of hand and let your well of good fortune fun dry. Also, consider the associated costs with big purchases like boats or cars. How much more insurance will you need to pay on your brand new Audi as well as the expense to maintain it?
5. Stay Clear of Common Money Traps
Sometimes people mistakenly believe that their financial windfall has magically put them in a new income bracket. But, often this is wrong. Be aware of buying things like a bigger and more expensive home and all the added expense that comes with it, such as higher utility bills, property taxes, etc. It’s crucial to live within your means even though you came into this money.
Receiving a huge financial windfall is a great opportunity that many people will never experience. Some windfalls come in the form of annuity payments or a structured settlement. Let the experts at myLumpsum.com make the most of your money.