5 Useful Steps to Manage Your Windfall

| September 6, 2011 | Comments (0)

Have you received an inheritance, lotto money or work bonus recently? Do you feel like splurging the money to your heart’s content on luxurious goods you’d always wanted to have? Wait a minute. Before you do so, think of how you can stretch the money by generating passive income for yourself from your windfall through sound investment methods.

There are overnight millionaires out there who squander all their money without proper financial planning, leaving them back to where they had started. Before you decide on anything, leave your money in a high interest savings account and take some time to think of how you can make the most of your windfall. In the meanwhile, take 5-10% of the money to celebrate your good fortune, without guilt.

Ensure that you consider the following advice in making the most out of your windfall:

Big win

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1. Buy sweet freedom

If you have escalating debts in the form of loans, credit cards and lay-bys, you should use the windfall to pay these in full before you decide to take any other action.

This rule holds true even if you are left with little after your debts are settled, because clearing your debts means that you can start saving and with an a significant improvement in your credit rating, your financial standing becomes more favourable. Furthermore, your sense of wellbeing is improved as your financial-related problems are alleviated.

2. Pay off your mortgage

The next thing you should do is to pay off your mortgage and save hundreds of thousands of dollars in interest payments over the long term. Once your mortgage is paid off, an enormous burden is lifted off your shoulders, leaving you free to do things you’d always wanted to do such as jet-setting around the world or setting up your own business.

3. Create emergency funds

Having an emergency fund is an essential part of finance management. This ensures that you have sufficient money set aside ready to be utilised when the need arises. A rule of thumb is to set aside six months’ worth of your salary in the bank for future emergency expenses. Once the funds are left aside, you can concentrate on investing the remainder of your money.

4. Set aside a children’s education fund

Funding tertiary education for the children is a top priority for parents, and reserving money for this purpose from a windfall can provide a great relief. Calculate the amount needed to fund each child and set aside a lump sum out of your windfall for your children’s education.

5. Diversify your investment

The final step to take is to invest the remainder of your windfall so that passive income can be generated to build a retirement nest egg. The proverb ‘Don’t pull all your eggs in one basket’ should not be taken lightly in money matters.

Diversify your investment by putting various portions of your windfall in term deposits, unit trusts, property, superannuation and purchasing shares from reputable companies.

A vital thing to note is that money invested in superannuation is taxed at a lower rate than most other investments. Hence, you may want to add this to your list of priorities in your investment planning. Diversifying your investment will safeguard yourself from losing all your money and having other resources to fall back on.

If you are the lucky recipient of a financial windfall, take the time to consider how you can make the most of your current situation. The initial step is to set goals before taking any form of action.

If you wish, seek the advice of a qualified financial planner who can assist in creating a plan that will assure the funds received meet your goals in the most efficient and effective manner. If your good fortune is handled wisely, it can provide you with the opportunity to achieve financial freedom that would otherwise appear out of reach.

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Category: Budgeting

About Emmie: Emmie is a regular contributor to 'Frugal Living'. She also writes for and administers her own personal finance blog. When it comes to shopping, Emmie certainly knows where and when to get the best deals and has acquired many proven tactics in stretching that dollar in all facets of life-shopping, dining out, commuting, travelling and investing. In her leisure, Emmie loves to comb the beach, listen to New Age music, travel to exotic places, read on her kindle and of course, write. View author profile.

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