How To Plan For Lump Sum Payments

The pursuit of happiness if often confused with the pursuit of wealth. Just as these two goals do not necessarily go hand-in-hand, it is quite possible to achieve one without the other. If your financial situation is not where you would like it to be, you have probably already fantasized about what you would do if you were to fall into unexpected money. Unfortunately fantasy is far from reality, therefore it is advisable to consider other wealth building strategies to reach your financial goals. That is however assuming you are not in the enviable position of knowing you are about to receive a windfall. If you know in advance that you are about to come into a significant amount of money, you should definitely have a plan on how you will manage your new found wealth. Otherwise you may find yourself making foolish or impulsive purchases that will prove detrimental to your long term financial security. Obviously the amount of money you have to work with will play a big role in your financial planning, however the following suggestions can give you a rough outline on what you should do with your found money.

• Pay off/down debt- If nothing else comes out of a windfall, getting out of debt will improve your long term financial security. If you have to pick and choose which debts to pay off, choose high interest/high balance debts first. Do not forget any taxes or other financial obligations that you have to pay as a result of coming into a large sum of money.

• Celebrate- While this may be your first instinct and rightly so, some people have a tendency to go overboard celebrating new wealth. Once you have taken care of your other financial obligations, you can relax a bit and treat yourself, family and friends with some form of celebration. The recommended amount of money to allocate for celebrations is 1%-2% of your lump sum payment.

• Put money in savings- Even with a plan, it is wise to first put your money in a safe savings account until you have “come to terms” with your new financial status. By allowing your money to sit for a few months or even a year, you will become more comfortable with the amount of money and really get a feel for how you want to invest, donate and spent the remaining money.

Remember that you are not the only one eager to spend your money. It is common when people come into a large amount of money, for others to want to get a piece of the pie. Make sure you use caution before helping charities, organizations or even long lost friends who suddenly appear in need of financial support. It is a good idea to hire a professional, knowledgeable CPA who can guide you through your new financial status; just make sure you are not taking advice from someone who will profit from your decisions. A financial windfall can be the answer to all your prayers, as long as you plan for the next few decades versus the next few days.