We all dream of getting that call one day – the one that tells us that we’re going to receive a potentially life-changing amount of money. The heart-thumping feeling associated with a windfall such as a lottery, an inheritance, a large profit on a sale, etc. may last for a few hours. However, once the initial euphoria subsides, it is important to decide what you’re going to do with your newly-received stash of cash.
For the majority of people, a windfall gain (depending on the amount) could be the opportunity to do all the things that were out of reach earlier. This could mean property, vacations and expensive purchases. It means the chance to square up one’s debts, get the kids into better schools, retire early, start a business, and not have to ‘sweat the small stuff’, i.e. everyday expenses.
While it is important to enjoy the fun and freedom that an unexpected payday brings, it is also necessary to maximise the longevity of your good fortune. Indians traditionally have been careful spenders. However, with rising aspirations, the consumer boom, and the globalised world, Indians want to experience the same kind of lifestyle as their richer Western counterparts, and that too in a hurry.
Trying to do too much too soon with a windfall is exactly the kind of mistake financial advisors caution against. There are four basic steps that will help you stretch your corpus to accommodate your financial goals, with enough left over for the fun things in life.
The first thing to do once you get the news is to pause for a while…maybe even for a few weeks or months. A large sum of money inevitably comes with stress and emotions attached, and a ‘cooling off’ period helps these feelings to settle, so that you don’t take any rash decisions. Also, figure out who needs to know about your financial gain. If you can help it, make sure that only your close and trusted ones are aware of the news, unless you want everyone from salesmen to long-lost relatives queuing up outside your door.
First things first, stash the money away in a bank. After the initial rush wears off, think of how you can keep the money and yourself secure. A lot depends on the corpus size…a few lakh is usually no reason to fret. But as the zeroes keep getting added, you’ll need to think of getting professionals who will help you keep the money safe. A banker or wealth manager could help you decide your financial goals, besides taxes or other statutory liabilities, and how best to manage them.
If you’re concerned that there might be some legal risk arising from the windfall, it might be a good idea to seek out an experienced lawyer. Similarly, you may want to draw up a will document to ensure that your wealth passes into the right hands in due time. Having a strong team of professionals not only helps you secure and grow your money from yu cash windfall; it also serves as a buffer between you and those who may treat you like an ATM machine. Having a third-party individual or firm handling all requests for your money can help you draw and maintain strict financial boundaries.
What’s the use of having a substantial amount of money if you can’t spend it? However, experts advise in favour of prioritising your money outflow. Draw up three buckets (categories) – you can call them ‘now’, ‘soon’ and ‘later’. The ‘now’ expenses will include anything that is pressing – for example, high-interest credit card or other debt. Similarly, if you have very little savings, salting away six months’ worth of savings would fall in the ‘now’ bucket. The ‘soon’ bucket would include costs that you’ll eventually need to prepare for, like kids’ college tuitions, home repairs (or a new home) and retirement planning, to name a few. The ‘later’ category is for that shiny red Ferrari that will give you enormous bragging rights, but simultaneously burn a steady hole in your wallet as well.
As the saying goes, money is a good servant, but a poor master. Put your windfall money to work for you by investing in long-term instruments – depending on your risk appetite, these could be government securities, the stock market, real estate or a bank deposit.
While this means bidding farewell temporarily to a major chunk of the amount, if you’ve chosen wisely, the amount will come back to you multifold after a period of time. Resist the temptation to dole out money to people you don’t trust entirely, or to invest in schemes that promise unrealistic returns. The best thing about getting a windfall is that you have the luxury of putting a part of it aside and forgetting about it.
And finally, have fun with the money, but keep reevaluating your financial position at regular intervals to ensure that your decisions have taken you forward to where you want to be in life, and not backwards into financial uncertainty.