Broker Check

Smart Ways to Handle a Financial Windfall

January 10, 2023

Brought to you by Saul Simon in conjunction with Lincoln Financial Advisors*

A financial windfall is something many people dream of, and for quite a few people that dream actually comes true. When people imagine this happening to them, they often think of winning the lottery or sweepstakes and using that money to purchase expensive luxury items.

In fact, financial windfalls generally occur in more traditional ways such as the sale of a family business or a substantial property, an insurance or legal settlement, a large pay increase, or an inheritance.

Making your new wealth last 

While a sudden surge in income or wealth can feel like the answer to financial concerns, if not handled properly (like overspending on unnecessary luxuries), it could cause more problems than it solves.

Thankfully, there are smart ways to help ensure the benefits and security of a windfall last as long as possible. Start by taking these four steps:

  1. Determine if the windfall is taxable or non-taxable. If it is taxable, then you want to address the tax impact first. It can be tempting to pay the tax at a later date but taking care of it right away can save you from owing a large sum during the next tax season.
  2. Take a careful look at how much you are netting, not getting. Make sure your financial decisions are based on the actual amount you will receive, not the pre-tax amount listed on the paperwork. Then figure out how the new wealth fits into your current financial situation.
  3. When considering your current financial situation, ask yourself “Do I have adequate retirement savings? Three to six months of emergency savings? Outstanding debt?” Your first priority should be to ensure you have enough money now and for the foreseeable future.
  4. Finally, once all other financial considerations are taken care of, you may want to use any extra money to realize some dreams, help out family members, pursue an interest, take a nice vacation, or support a favorite charity, for instance.

Work with a professional

Although there are smart ways to handle a windfall on your own, there are times (i.e., if the dollar amount is very large, or the financial or tax implications are highly complex) when the best thing to do is to meet with a financial professional.

A financial advisor can work with you—along with your attorney, accountant, and/or insurance agent—to determine the best approach to take. For example, if you are not currently in debt or you are already up to date on your retirement savings, you may want to consider:

  • Investing in stocks, mutual funds, real estate, or business opportunities
  • Setting up trusts for your family
  • Buying extra life insurance
  • Adding more to a college savings fund
  • Purchasing other financial products to protect your income and/or assets

The point is your windfall does not necessarily have to be earmarked for spending or paying bills. A financial professional can help you grow this money and work toward making your own or your family’s financial future even more secure.

Choose the right path for your unique situation

It may sound like a challenge we would all love to have, but handling a financial windfall intelligently is not as easy as it might seem.

If you experience an infusion of money, start by using the four steps mentioned above, and contact a financial professional to discuss strategies that can help you make the most of your newfound wealth.

About Saul Simon

Saul Simon, CFP®, CFS, RFC is a registered representative and investment advisor representative of Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor, 99 Wood Ave. South, Suite 201 Iselin, NJ 08830 and (732) 623-2070 offering insurance through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice.

You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors for its representatives and their clients.

*The content of this material was provided to you by Lincoln Financial Advisors for its representatives and their clients. This article may be picked up by other publications under planner’s bylines.