Windfall, in another word are nothing but receiving large amount once in bulk. The reason maybe anything for such. Lottery, inherited wealth, receiving large price for the asset you think is worthless etc. But what I realise that they can make your finance straight if you know how to handle them right. So in this post, I am going to mention what I think, What I found on net, What I get from Experts.
Vast sums of money aren’t a guarantee for the easy life. Lottery winners tend to file for bankruptcy at double the rate of the general population. A Sports Illustrated investigation found that 78% of NFL players file for bankruptcy or experience financial difficulties within two years of retirement. 70% of families lost control of their assets in the first generation following wealth transfer, according to a 2010 survey of more than 2,000 rich families by The Williams Group, a wealth management firm.
When I started reading and studying for this post, I realise that this is very deep subject which is most of the time, ignored. I also found that people think windfalls are about money. But it’s really all about change and transition. All of sudden receiving huge money is not something you can expect everyday, its like changing everything in minutes and people need time to adjust. In fact the situation is not at all monetary but Psychological. Unexpectedly getting as little as 3 months’ worth of salary in a lump sum can set off a chain reaction of panic, guilt and fear for some, according to psychologist Dennis Pearne, co-author of “The Challenges of Wealth” and a wealth counselor and consultant based in Framingham, Massachusetts.
The shock of a sudden windfall can set off a litany of irrational behaviors, such as giving all the money away, becoming a recluse, spending the money lavishly, or hiding or hoarding the money. Other hallmarks of money shock include engaging in self-destructive and expensive activities such as substance abuse, gambling and sex addiction also. People dont understand limits of this new wealth. What they think is its unlimited money which its not.
So How to handle such windfall
- Money Moratorium : Do nothing for at least 3-4 month. Park your money safe where it won’t depreciate and take a money holiday. In fact keep your life same for that time is one of the best way to handle.
- If you are thinking to quit your job, don’t do it for sake of god.
- Enjoy but in limit : Earmark 10% of your cash as fun money but by maintaining your current lifestyle. This is supposed to be your final option.
- Avoid spending and investing heavily. If needed, take help from professional.
- Check your financial planing : Use the money for your goals which are lagging behind. Make sufficient provision for your important goals like Retirement.
- Talk with Financial advisor : You should have a trusted adviser to act as a buffer between you and the legions that want a piece of your wealth.
- Build some asset which will take care you in future.
- Create plan for whole money. Allocate and make budget. If not needed whole money at once, invest it in fixed income or less risky assets.
- Repay your outstanding debts having big cost.
- Review after one year what is changed. What is right and what is not changed.
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