Vail Valley personal finance: Windfalls a time to prepare, not spend |

Vail Valley personal finance: Windfalls a time to prepare, not spend

The tale is not uncommon: a person comes into a large amount of money through some financial windfall – a lottery payout, perhaps – and rather than helping that person’s financial situation, the money is quickly frittered away, sometimes leaving him or her worse off than before.

For most people, winning the lottery isn’t in the cards, but a financial windfall is not out of the question for many people. Indeed, what many don’t realize is that it is far likelier that a large amount of money may land in one’s lap through an inheritance, proceeds from the sale of a business, or lump-sum payments from retirement plans versus winning big in Las Vegas, which is an event that requires a serious beating of the odds.

But that windfall can quickly turn into a nightmare if not handled correctly. Stress and anxiety often accompany unexpected wealth and for good reason. Typically, many people who receive a large sum of money spend it all within a few years and sometimes amass more debt than they had before the windfall.

How does one avoid this? Some very simple tips can help one sidestep the pitfalls that often accompany unexpected wealth.

• Resist the temptation to spend: Buying a sports car or taking a cruise is a natural impulse, but waiting a few months to explore all options is a good idea. In the short term, consider depositing the money into an interest-bearing bank account that keeps the windfall safe.

• Put it in perspective: With the extra bucks may come extra tax obligations. Before sharing, saving or spending, set aside enough money to cover the taxes of a higher income tax bracket.

• Reevaluate goals and budgets: Sudden wealth may dramatically affect one’s goals. Regardless, continue to think long term and keep careful track of goals and budgets.

• Review estate and retirement plans: Update wills and review estate tax issues. Doing so ensures the right transfer of wealth based on new circumstances.

• Share: Set aside some money for family, a favorite charity or congregation.

• Seek professional help: A professional can provide sound recommendations and innovative solutions to help manage a windfall in ways that reflect one’s values while helping one stay focused on long-term goals.

Financial windfalls can be managed in a way that is both enjoyable and responsible. Professional help can ensure that the windfall actually helps secure one’s future, not jeopardize it.

Patricia French is a Financial Representative with Thrivent Financial for Lutherans. She can be reached at 970-926-0251. Thrivent Financial Lutherans is a Fortune 500 financial services membership organization helping approximately 2.6 million members achieve their financial goals and give back to their communities.

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