By Barbara Pronin, RISMedia Columnist
Whether you’ve inherited
a large sum, sold an asset for cash, or won a lottery prize, coming into money
is exhilarating. But the thrill of the windfall may not last long unless you
plan ahead to make the most of it.
Before you go on a spending spree,
say financial consultants at Consumer Reports, take a deep breath and consider
these eight steps to maximize your sudden wealth:
1. Park the
cash – Do nothing immediately but put it into an FDIC-insured money
market account. (If over $250,000, divide into two accounts.) Or put it in a
three-month CD with a penalty for early withdrawal. 2. Consult a
financial advisor – Find a fee-only financial planner who makes no
commission from your investments. A certified planner can help you devise a plan
to help you meet your financial goals and pay you an allowance if that is what
you want.
3. Cut debt – High interest loans like credit
card debt should be paid off first. Then build a safety net of cash, enough to
cover six to 12 months of living expenses. Then consider paying off some or all
of your mortgage, depending upon the return you might expect to get by putting
the money elsewhere.
4. Boost your savings – If you are not
already contributing the maximum to your retirement account, start doing so now.
5. Keep your job – A windfall will propel you into a
different standard of living only if it's a vast sum of money, say several
million dollars. In most cases, you shouldn't quit or retire early or you may
blow through your bequest.
6. Learn to say no – Think twice
before giving money to friends or family members—and especially to the
salespeople who will almost certainly find you.
7. Allow for fees
and taxes - If you inherit assets other than cash, the amount you
receive may be less than you expect. For example, if you inherit a house or
stocks, you'll likely pay a real-estate or brokerage commission when you sell.
8. Indulge yourself a bit – Once you’ve accomplished the
first seven steps, use no more than 10 percent of the windfall to take a
vacation or buy yourself something nice.
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