$68 Trillion!
According to Forbes, Millennials are set to inherit this large amount of money from their Baby Boomer parents by the year 2030. This will be one of the greatest wealth transfers of all time!
Financial windfalls can have positive and long-lasting benefits. This money can improve your financial well being and help you reach your goals faster!
But, all too often tit doesn’t work out that way. According to Roy Williams of The Williams Group, less than one-third of wealthy families will retain their wealth as it’s transferred from one generation to the next!
If one-third preserves their family’s wealth, then two-thirds wastes it. That’s a sad statistic and makes it important that you know how to manage a large amount of money.
They occur when you receive a large amount of money. Often, they’re the result of a one-time event, like a bonus, settlement, or inheritance. Some people consider them to be free money since they can stem from something unexpected.
Financial windfalls mean different things to different people. They can vary in size and range from a few hundred to thousands of dollars. For a select few, like lottery winners, it could mean millions!
Receiving a large amount of money provides you with a great opportunity. One that can help you get debt free, create wealth, and achieve your dreams faster!
A financial windfall isn’t a regular event. It’s not something that most people budget for or plan on receiving.
Still, there are some steps that you need to take if and when you receive a large amount of money. The plan outlined below will help you remain calm and determine your best course of action.
Receiving a financial windfall can put you in an intense emotional state. This money could bring feelings of excitement or sadness, depending on the circumstances that triggered it.
The first step is to take some time to digest the events that have happened. You may need to get used to your newfound wealth or unwind and grieve the death of a loved one.
Many individuals in this situation feel pressure to make quick decisions, too. The money can seem like it’s burning a hole in their pocket, causing them to make poor choices. (pun intended)
But, there’s no pressure. Just stash the money someplace safe, like a HYSA. Then, do nothing. Take the next 3-6 months to relax and live your normal everyday life. Use this time to take a step back, adjust to your new normal, and reflect on what to do next.
In cases where a huge amount of money is involved, you should take even longer. Everyone’s heard about lottery winners who have blown their fortunes in a few short years. They lose everything they’ve been given and sometimes end up worse off than they started!
Gaining a large amount of money can have an enormous impact on your goals and life. But, it can also trigger a huge tax bill!
Anytime you receive uncommon income, you should consult with your tax professional. They’ll help you determine how the financial windfall affects your future tax liability.
Money received as gifts and inheritances are usually tax-free. But, those that aren’t will put you in a higher bracket and increase the amount that you owe.
Still, there are some things that tax experts can recommend that you do. They may have you split the income, make charitable donations, or consider your payout options.
Based on the amount you receive, this could be a good time to talk with an estate planner, too.
In some instances, you get to decide how you want to receive a large amount of money. The two options you have to consider are as a lump sum or over a series of payments.
Receiving the payout as a lump sum is best for people that have financial discipline. It takes self-control to not go out and blow the money on careless purchases, and instead see the money as an opportunity. One that can change not only your life but the lives of others, too!
Choosing to receive the payout as an annuity tends to be best for impulsive individuals. It allows the distributions to be spread out over time, reducing the likelihood that they’ll run out of money.
Taking a financial windfall over a series of payments does have a downside. This option allows inflation to devalue its purchasing power. The amount of money that you receive in the future may be the same, but it will buy fewer goods.
When you’re dealing with a large amount of money, get professional advice. Speak with a fee-only fiduciary financial advisor to determine which option is best for you. In some instances, it may make sense to have them manage it for you, too.
Professionals will help you figure out the amount of money that’s left after taxes. Use this number to determine the next steps you should take.
Consider how this large amount of money can help you reach your financial goals. It could get used to pay off debt, grow your nest egg, or to start working towards early financial freedom!
Have you noticed a pattern yet? In most articles, you should put money towards your goals first. Then, spend and enjoy what’s left.
Yes, you read that right. A tightwad rarely tells you to go out and spend money!
Celebrate this occasion or milestone. Buy something you normally wouldn’t or spend it in the area that brings you the most joy.
If you received money from an inheritance, consider how you can make your loved one’s legacy live on. This could mean doing something they always dreamed of. Or supporting a cause that was near and dear to them.
No matter what, be sure that you enjoy a portion of your new wealth!
Receiving a large amount of money doesn’t change your money mindset or financial principles. It amplifies the ones you already have!
A few years ago, an acquaintance of mine received a 6 figure inheritance. It came as a sudden shock and he spent the next 18 months living it up. Soon, he had blown through the cash and was no longer able to support his lifestyle. In the end, his careless spending and lack of basic money skills forced him to file bankruptcy.
Failing to plan is planning to fail. By not having a strategy to manage large amounts of money, you run the risk of turning your good fortune into financial hardship.
Following a financial plan is important, no matter the amount of money you earn or receive. It ensures you’re planning for the future and enjoying it, today!
What will you do if you receive a large amount of money? Comment below.
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