5 Things To Avoid If You Receive A Financial Windfall
Many people dream of winning the lottery and receiving a life changing lump sum. But large lump sums can also arise from winning on Premium Bonds, negligence compensation, redundancy, sale of a business or, most commonly, from an inheritance.
But while receiving a financial windfall might sound appealing, making good financial decisions can be a real challenge for the recipient. The media is full of stories of lottery winners who ended up penniless and lonely within a few years, or a business owner who slipped into depression within a few years of selling their business.
If you or someone you know comes into a windfall, my five-point checklist can help you to ensure that the money makes a positive impact on your life and, more importantly, isn’t frittered away.
Don’t splash out – Resist the urge to spend for at least the first 12 months. It’s essential to work out what’s really important to you in life, and the role that money plays, so that you don’t waste your money on lots of meaningless possessions or a big house that alienates you from your friends. If you still want to spend money on something after a year, there is a good chance that it’s important to you.
Don’t make lavish gifts – Many people want to share their good financial fortune with others, but the problem is this can easily get out of hand and cause friction between different family members and friendship groups. Keep any gifts modest and low cost. If you still want to splash out on others after a year or so, make sure that this doesn’t affect your own financial security.
Don’t give up your job immediately – Unless you have sold your business, continue in your job for as long as possible, unless it is so awful that you really can’t stand it. Work is a central element in most people’s lives and it creates structure and purpose to the day and, in most cases, provides opportunity for human interaction. Once you’ve re-evaluated your priorities and what a good life looks like, you might then wish to change your job or give up paid work entirely.
Don’t tell anyone – keep your financial situation as confidential as you can. The less people who know you have come into money the less pressure you’ll feel to spend, gift or make big changes in your life. It will also minimise the potential for people you know to feel envious and impair your relationship with them.
Don’t invest in anything – There are always lots of opportunities to invest your new wealth in any number of plausible and attractive businesses or investments. The problem is you might be committing your funds to very long-term and sometimes highly illiquid ventures or holdings, when you are not clear what you want to do with your life.
The first 12 months from receiving a financial windfall are the most important, during which you should take the time to think about and clarify what a good life really looks like to you and the role that money plays in achieving that
Then you should determine how much you need to have in savings and investments to support your desired lifestyle and other priorities, and how much is available to fund property purchase, business investments and spending on other ‘fun’ things.
I can’t guarantee that coming into money will make you happy, but if you follow my five top tips there is a very good chance it won’t make you sad and lonely.