Personal Wealth: How to Handle a Financial Windfall

Cathy Curtis

Cathy Curtis

Some of us will be the fortunate recipients of a sudden, unexpected or unearned sum of money that can be life changing.

Unfortunately, many of us will blow it. Such is the nature of sudden wealth.

by Cathy Curtis, Certified Financial Planner

Whether it is an inheritance, a bonus, a commission from a large business deal, or proceeds from the sale of a company – once the money hits the bank it can be hard not to spend it.  

Often, the money will be three-quarters of the way gone before the beneficiary realizes that it may not last. Some get help to figure out how to manage the remaining sum, others just keep spending until it’s gone.  Let’s face it: it’s not difficult to spend lots of money buying and furnishing a bigger house, collecting art, traveling, being generous with family and friends, or upgrading wardrobes and lifestyles.

How can a person avoid the pitfalls of sudden wealth?

1. Lock the money into a 6-month CD and experience a “cool-down” period to absorb your good fortune and experience the emotions that can come with getting a windfall.

2.  Keep your job and don’t quit just because you receive a large sum of money.

3.  Crunch some numbers.  If you want to upgrade your lifestyle, create a new budget and calculate whether it is sustainable over your lifetime.  If you aren’t good with numbers or need objectivity, make an appointment with a financial advisor who will do the projections for you. 

Have your advisor prepare what-if scenarios depending on your dreams and goals.  What if you quit your job and took a new one at half the pay to do what you love? What if you took a year-long sabbatical to study art history in Paris? What if you bought an $800,000 second home in Tahoe?  Would your financial plan still work?

4.  Once you know what you need to sustain your lifestyle you can build an investment portfolio.  What you invest in will depend on your time horizon, risk tolerance and financial goals. Some may be invested for income and some for growth.  Get help if you need it.

5.  Choose your advisors wisely. When you interview advisors find out how they are paid. That information alone will tell you what kind of advice you may receive.  Ask for references and check them.

6.  If you want to help out family or friends with gifts or loans, go back to your financial projections to see if you can afford it. Keep transactions at arm’s length when possible.

 Think about the future. Do you want your new fortune to last for a few years?  Or do you want it to help you create a more comfortable life over many years? The good fortune of choice is yours!

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Category: Wealth Management

About the Author (Author Profile)

Cathy Curtis is an independent fee-only Certified Financial Planner and CA Registered Investment Advisor based in the San Francisco Bay Area. Her firm, Curtis Financial Planning (since 2001) specializes in the finances of women, their families and their businesses.

Cathy passionately believes in Financial Literacy and educates consumers through her website CurtisFinancialPlanning, her blog: Of Independent Means, and her facebook business page Women and Money. She speaks frequently about personal finance issues – most recently at the Financial Women’s Association in San Francisco, National Association of Personal Financial Advisors Norcal Group, and the Commonwealth Club.

Check out Cathy’s Author Library to learn more practical and helpful tips on Money Managment!

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  1. [...] This post was mentioned on Twitter by Cathy Curtis and Heather HAL, Nancy Egan. Nancy Egan said: In case you win the lottery: RT @curtisfinancial: New post on @SFWomensJournal How to handle a financial windfall: [...]

  2. [...] post for the San Francisco Bay Area Women’s Journal: Personal Wealth: How To Handle A Financial Windfall. The San Francisco Bay Area Women’s Journal is an online lifestyle  magazine for savvy women [...]

  3. [...] post for the San Francisco Bay Area Women’s Journal: Personal Wealth: How To Handle A Financial Windfall. The San Francisco Bay Area Women’s Journal is an online lifestyle  magazine for savvy women [...]

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