After receiving a financial windfall, such as an inheritance or lottery winnings, it’s important to stop and think about what you want to do with your money.
“Unexpectedly receiving large amounts of money can potentially change the course of your life, only if the money is used wisely. It’s important to understand that managing a large amount of money is not easy and the first instinct for most people is to spend, especially on big ticket items such as cars, holidays or expensive jewellery. While a bit of self-indulgence is acceptable, uncontrolled spending could lead to wastage. Therefore, it is important to seek help about how you can manage your money,” says Ester Ochse, Channel Head for FNB Advisory.
“A sudden bulge in your bank account from an inheritance, for example, is hard for most people to fathom. They spend before committing to any sensible financial decision such as investing the money towards education,” adds Ochse.
Ochse has the following tips for anyone who has been fortunate enough to receive large sums of money:
1. Pay debt
Tackle your debt as soon as possible, this could be the only opportunity to live a debt free life, and be able to direct your money on building more wealth. Once your debts are out of the way, keep it that way and resist the temptation to take up debt unnecessarily.
2. Think twice before quitting your job
Many people are tempted to quit their jobs when they receive large amounts of money. But quitting comes with limitations because you will lose your regular income and other worthy benefits offered by your company.
3. Seek financial advice
A windfall can fundamentally change your financial situation. You have to take into account your estate planning, lifestyle and your investment objectives. Therefore, it is recommended that you speak to a certified financial advisor who will assist with achieving your short and long-term goals.
For individuals who are already financially stable, see it as an opportunity to diversify your investment portfolio. This is where goal-based financial advice could help you tailor a plan that will help you realise your long-term financial aspirations.
4. Save for emergencies
Having an emergency plan to cover your living expenses due to unforeseen circumstances is important. If you didn’t have one prior to receiving a windfall, now is the good time to start. Ideally, you should have enough money to cover six months living expenses. The savings must only be accessed in the event of serious need such as a medical emergency.
“Understanding the psychology of dealing with a lot of money can help you take the right steps to protect your money. Every financial decision must be carefully considered to avoid being in a compromising situation in future,” concludes Ochse.