What to Do If You Receive a Windfall

So you just came into money. Whether you (literally) hit the jackpot or made it big by selling your business, you might be wondering: Now that you’ve got a large amount of money that can transform your life, what should you do with it?

We spoke to Jill Schlesinger, CFP® and host of the Jill on Money podcast, for her advice on what to do when you receive a “life-altering” windfall. 

Assemble a team

For starters, you’re likely going to need a team of professionals to help you with managing your newfound wealth. An individual’s team will vary depending on their needs, but generally, here are how financial professionals could help you create a plan: 

• Paying taxes: A Certified Public Accountant (CPA) is an accounting professional who has passed the CPA exam and has met certain work experience requirements in order to get their license. CPAs can be auditors, business advisers, decision makers, tax consultants, accounting consultants and more. 
• Funding your present and future: A financial planner can help you assess ways to save and invest money, identify and goals (and save for them), see your full financial picture and see if it makes sense. Financial planners can have many different certifications and designations, so make sure you read up on an individual’s credentials when choosing a financial planner. 
• Planning for the next generation: Estate Attorney: this type of lawyer can advise clients on estate planning. This includes things like living trusts, estate taxes, and ensuring your assets are allocated according to your wishes.  

Make sure the basics are covered

This may not feel glamourous, but a smart way to set yourself up to making the most of a major payday could be cleaning house and getting these key financial matters done and dusted.

#1: Clean up debt

If you’re carrying debt that’s not offering a benefit, why not wipe it out? “Any windfall in this situation should go toward paying down consumer debt,” Schlesinger said. So her advice is to pay off your credit card debt and student loans.

She also says a windfall is a good time to make it a priority to pay off money you many have borrowed from family.

#2: Beef up your emergency fund

Think you don’t need an emergency fund now that you’ve got a lot of money? Well it could still be a good opportunity to make sure you’ve got at least 6 to 12 months of living expenses in reserve. If you plan on increasing your lifestyle expenses, you’re also going to want to revisit what 6 to 12 months of expenses looks like with a pricier lifestyle and then set money aside for your upgraded expense list. 

#3: Fund your retirement

Ask yourself if you’re contributing enough to your retirement. To Schlesinger, this means maxing out your 401(k) and seeing if you and your spouse can each put $6,000 into an IRA, or $7,000 if you’re over 50.

If you’ve already checked off that box, it could be an opportunity to ask your financial advisor if this is enough money to retire on and if there are other ways you could save for your future.

#4 Consider expenses you know are coming

Maybe you’re going to send a kid to college (read up on 529s), or maybe you’ve got a home renovation (like a new roof) coming.

If you’ve got the money to tackle these things, put them on your list of priorities, Schlesinger said.

Now really think big

Getting this kind of money can be a real reset to your entire financial life. So stop and really think about how it might reshape your day-to-day. “This is a shot at something really changing your life,” Schlesinger said. 

And no, we don’t mean upgrading to exclusively flying private, or immediately quitting your corporate job (though admittedly both sound satisfying).   

Your reset might be changing your job to do something more meaningful. Or perhaps you want to be philanthropic and set up a charitable trust in your name. Maybe you want to take care of your kids for life, but distributed in increments versus giving them the money outright.

Whatever you decide to do with your big windfall, take some time to think about it, and then use your team to help you pull that plan together. It’s going to be completely unique to you, and how you want to live your life going forward. 

Family – who gets what?

Talking with family members about money you just came into can be tough. Schlesinger offered two suggestions:

• You really don’t have to treat each child the same. One example she used was a client who had three (adult) children: two without kids, and one with three kids. The client’s windfall was $6 million and she took some of that money and set it aside for her three grandchildren. Her two kids felt like they were treated differently. They were, but the process of “who needs what and how” is the kind of thinking she recommends if you plan to share.
• If you are sharing money, be upfront with your children about it. Even though these conversations can be uncomfortable and delicate, discussing these matters upfront is important. One time the truth will probably out itself is after you’re gone and when your estate is being settled, which she says can cause a lot of “bad blood.”