Many people dream of one day receiving a considerable sum of money, whether through a large inheritance, winning the lottery, or selling their business or home. Whether the windfall is expected or not, without a plan, coming into a lump sum of money can be overwhelming at first and emotionally draining once the dust settles.

We’ve all read or heard stories of lottery winners who went from rags to riches to rags again, ending in bankruptcy. [1] While most of us may not win the lottery, we may receive money from an inheritance or a gift we weren’t expecting. This news will undoubtedly stir up thoughts of grandeur on how to spend it or for those more practical, how to best protect it. Not to mention, there are also taxes to consider. It can be exciting and scary at the same time.

For these reasons and more, building a financial plan may help you avoid the pitfalls of emotional or poor decision-making by creating a roadmap. This roadmap will act as your guide, helping you stay on track and get the most out of your new-found wealth. By creating a plan, you will cover many topics that matter most to you, such as:

Assessing your short-term goals.

Has there been anything on your to-do list that you would like to check off within the next few years? Buy a more reliable car, take care of house projects, or bolster your emergency savings fund? It’s vital to assess these needs before you consider investing, as the funds necessary to cover the costs of these goals may need to remain in cash.

Paying off high-interest debt.

Do you have any debt? Our team defines high-interest debt as any loan with an interest rate of 6-8%. This is typically found in credit card debt, some student loan debt, and personal loans. It is important to aggressively pay down high-interest debt, and receiving a lump sum just might provide you with the opportunity to do so!

Building an investment plan.

Analysis paralysis can sometimes lead someone to leave their windfall as cash. Building a personalized investment plan that aligns with your goals and timeline is essential to avoid the permanent risk of holding cash. This step is one where an advisor is especially valuable to provide expertise and advice.

Treating yourself.

Receiving a windfall should not feel like a chore. As your financial plan is being built, it’s okay to add room for things like gift and travel. Not only will it make you feel good that it’s in the budget, but it will give you something to look forward to. Considering even small treats is good to do as it will help you plan to budget for bigger things like travel. According to a survey by the Harvard Business Review, 80% of people derive a greater level of happiness when spending money on experiences rather than buying material things.

You can certainly create a basic goals-based plan on your own, or you could look to hire an expert to help you with comprehensive planning. Here are three ways an advisor can help you:

1. Discuss what may be the highest and best use of your dollars.

An advisor will help you prioritize your needs and wants. While it may seem like you are set for life, without proper planning, the money can disappear fast.

2. Help decipher what is important to you.

For many, coming into a lump sum of money can be partnered with heartbreak from losing a loved one or the pain from a legal settlement. Having a discussion measuring both objective and subjective factors is essential.

3. Partner with you to help keep you accountable for your goals.

Many come into money with great intentions but fail in the execution due to a lack of responsibility, intentional or not.

See The Value of Hiring Human Investing for additional information about the advantages of having an advisor.

As always, our team is here to help. We believe receiving a lump sum requires deep consideration and understanding as it relates to your overall financial well-being. If you would like to connect with a dedicated team member to go over your options, please use this link.

[1] The Ticket to Easy Street? The Financial Consequences of Winning the Lottery

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