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Jackpot! 6 tips to manage a windfall

We've all fantasized about that Powerball win or fat work bonus, but what would we do if fantasy became reality? Here are six good reality checks.

By MSN Money Partner Jul 19, 2013 4:02PM
This post comes from Craig Donofrio at partner site Money Talks News.

MSN Money partnerIt’s happened to all of us, at least in our dreams: a lottery win, a big inheritance, a streak of luck at the gaming tables, paying $7 for a $75,000 Renoir at a yard sale.

It can happen.

Sooner or later some unexpected money is likely to fall in your lap. Manage it properly, it can improve your quality of life. Mess it up, and it could ruin your life.

But whether it’s millions or just a $3,000 tax refund, Money Talks News founder Stacy Johnson has some tips for how to manage a windfall. Check out the video below, then read on for more advice on getting the most out of unexpected money.
1. Stop

Don’t do anything at first: No shopping sprees, no donations to charity, no lending money to friends and family. Don’t even tell anyone. The last thing you want to do is risk wasting your windfall by acting on impulse, or encouraging friends and distant family to volunteer their assistance or hold their hands out.

The greater the sum, the longer you should take to assess your financial situation and identify some short- and long-term goals. If the amount is significant, a month isn’t too much. It’s not going anywhere.

2. Pay off high-interest debt
Once the planning stage is over, the first step should be obvious. If you have debt, especially the high-interest kind, pay it off. Using a $5,000 bonus to eliminate a $5,000 credit card balance with a 24% interest rate is the same thing as earning 24% interest risk-free and tax-free -- something virtually impossible to do elsewhere.

There are instances where paying down debt makes less sense. For example, if you’re paying 3% on a mortgage and can earn 10% in the stock market or elsewhere, you’ll obviously come out ahead by leaving your debt intact. But in general, paying interest is bad, and reducing your debt is the best thing you can do with any extra money, windfall or otherwise.

Image: Money (© Grove Pashley/Corbis)3. Put some aside for emergencies
Fine: You’ve thought about what to do and destroyed some debt. Now can you go to the mall?

Not yet. Put some of that cash aside for a rainy day. According to a survey by, 27% of Americans have no emergency savings. If you’re a paycheck away from a financial emergency, now’s the time to fix that.

Ideally, you’ll want at least six months of living expenses in an emergency account that’s readily accessible, like a savings account or money market fund. If your job is stable, that should do it. If it’s not, however, the more cash you have, the better.

4. Grow the rest
If you’re fortunate enough to inherit $100,000, the best thing you can do with it is make it into $200,000. How? By investing it. If you’re not sure what to do, now’s the time for a little research. Check out articles like, “Beginning Stock Investor? Here’s All You Need to Know,” for tips like:
  • Don’t be a dope. Day trading, penny stocks and buying based on rumors are sucker bets.
  • Don’t put all your eggs in one basket. Diversify: stocks, real estate -- maybe even turning a hobby into a business. Spread it around.
  • Kiss the money goodbye for a while. One of the luxuries of found money or a windfall is allowing you to invest longer term without worry. Things like stocks and real estate take time to blossom. A windfall buys you that time.
5. Seek expert advice
It’s best to hire an expert if your windfall is of considerable size. Interview several financial advisers who are paid by the hour, never by commission. And don’t ever deal with anyone without checking their credentials.

Ask friends for referrals or check the National Association of Personal Financial Advisors, or, preferably, both.

And don’t ever simply turn money over to someone else. Helping you understand your investments is their job. Being responsible for your own money is yours.

6. Enjoy yourself
Last, but definitely not least, use some of that money to treat yourself to a great experience, like a trip to a place you’ve always wanted to see. One of the main reasons to have money is to enjoy it.

Obviously, the weight you’ll put on the steps above will depend largely on the amount of your windfall. Inheriting $10 million is a lot different from a $2,000 bonus at work. But the principle is the same: Take your time, think it through and decide where the money will deliver the biggest bang for the buck.

What about you? Ever come into some money? If you did, did you use it wisely, blow it, or a little of both?

More from Money Talks News:

Jul 22, 2013 10:45AM
Lottery winnings are taxed before you even get them.  Inheritances are taxed...definitely need an advisor for that.  Life insurance proceeds are NOT taxed.  Bonuses usually have taxes taken out before you get the check.  So, Martha508, it really depends on the windfall as to how you handle it.
Jul 21, 2013 8:04AM

Growing your assets.  Never encountered a financial advisor who suggested using stops

on any equities in the portfolio.  Never encountered a financial advisor who used technical

analysis.  However, doing it yourself is hard work.  Maybe divide the portfolio up into a

managed account and a self managed account.


Jul 23, 2013 3:11PM
#5 should be #1, and should occur regardless of the size of the windfall.  Better yet, one should already have a financial planner or advisor, regardless of one's situation.  As far as the fee-only issue, that's also baloney.  The alleged objectivity offered by fees versus commissions is an absolute fairy tale.  The regulations and standards prohibiting the fee-based advisor from selling products are so full of holes and exceptions as to be effectively nonexistent; not to mention that if that advisor doesn't sell a product, he's likely receiving a referral fee from the agent or advisor he recommends.  There is rarely a justification for paying a planning fee, and it is very uncommon for a truly qualified advisor to make a recommendation with anything but the client's well-being in mind.

Rob Drury 
Executive Director, 
Association of Christian Financial Advisors
Jul 19, 2013 5:28PM
pay off your bills and put the rest away somewhere so you cannot be taxed  on it until it is gone 
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