Windfall Wisdom: How To Make Unexpected Cash Work For You
By J.J. Montanaro
Fall 2007
Shara Sohn’s $12.10 grocery store trip last year turned out to be anything but routine.
Just by using her debit card to pay for a few groceries from the Kroger store on
Shara received a letter this February saying she had won a $350,000 cash award, but she could not believe her eyes. In fact, she says her “first reaction was that it was a scam, but it came FedEx rather than regular mail.”
Now Shara and her husband, David, are looking forward to spending more time with their six-month-old daughter and planning their future together.
After two tours to
“This prize money will enable us to pay off the mortgage on the new home we purchased last year and invest for our baby daughter Sophia’s future,” Shara says. “It could not have come at a more perfect time.”
When Dreams Come True
Many Americans dream of winning sweepstakes and lotteries. In fact, about one in five believe the lottery is the most practical way to secure several hundred thousand dollars. The truth is, you’re more likely to get struck by lightning.
But what happens if a large sum of money suddenly lands in your lap? Whether it comes from a lottery, bonus, divorce settlement, inheritance or any other source, a sudden lump of cash can change your life – for better or worse.
When asked what they would do with a windfall, 51 percent of respondents in a 2006 USAA survey conducted by Harris Interactive said they would choose to pay off debt. Others said they would set money aside for savings or pay off household bills. All are admirable intentions, but there is no single formula for the right way to manage a windfall.
Once the initial thrill passes and reality settles in, don’t rush into financial decisions. Except in the event of an urgent payment – overdue rent, house or car payments, for example – hold off spending until a professional can evaluate your situation and provide informed advice.
The Sohns were not tempted to indulge themselves, splurging only on a big-screen TV and a much-needed mattress.
“With an unexpected windfall, many consumers rush out to buy a luxury car or an extravagant vacation,” said June Walbert, Certified Financial Planner™ with USAA Financial Planning Services. “I commend the Sohns for putting this money toward their mortgage and investing the rest. Making smart choices and saving for the future is important to every family’s financial security.”
Easy Come, Easy Go?
Sudden wealth has its downside. Taxes can eat 28 percent or more of a windfall. Some people let guilt lead them to give more than they should to family members or friends. And plenty of people likely will come out of the woodwork, hands outstretched.
“People say, ‘If I had money, it would take care of all my problems.’ But the thing is, money creates other problems,” says Scott Kahan, a Certified Financial Planner™ professional with Financial Asset Management Corp. in New York. “People want to help family and friends, but where do you stop and how do you say no? A very large percentage of people who come into [a large sum] may think it will last them a lifetime, but in reality it can go very quickly.”
That’s not the case for one servicemember who won $2 million from a slot machine in
“The money has given us peace of mind. But this isn’t the kicker to my life,” she says. “I love my job, and I don’t plan on quitting.”
A windfall is occasionally the result of luck, but luck is rarely involved in making sound decisions with that money. The Sohns and the anonymous slot machine winner show that windfalls can benefit their recipients in remarkable ways. But it all depends on the choices they make.
It’s far better to apply careful thought and focused effort than to look back and wonder how your luck ran out.
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Joseph “J.J.” Montanaro is a CERTIFIED FINANCIAL PLANNER™ practitioner with USAA Financial Planning Services, one of the USAA family of companies. Montanaro has served in the
MasterCard develops and markets payment solutions, processes over 16 billion transactions each year, and provides industry-leading analysis and consulting services to financial institution customers and merchants. Through its family of brands, including MasterCard®, Maestro® and Cirrus®, MasterCard serves consumers and businesses in more than 210 countries and territories.
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Five Ways To Make Unexpected Cash Work For You
Odds are you won’t win the lottery. But surprising sums can come from other more likely sources – a big tax refund, a generous pay raise or an inheritance. Whether it’s $500, $5,000 or much more that suddenly falls into your lap, these tips will help you spend it wisely:
1. Take it slow. You don’t have to decide right away what to do with all of the money. Park it in a temporary and safe place such as a savings account, money market fund or certificate of deposit. Postpone major decisions until you’ve had time to get over the shock of having more money.
2. Write down goals. Financial experts suggest listing your priorities from most to least important. Do you need to pay off high-interest credit card balances? Are you ready to move into a better neighborhood? Name your goals and determine what you’ll need and want to do first.
3. Get expert advice. Talk to trusted advisors. Tax, legal and financial experts can help you avoid costly mistakes and protect your assets.
4. Treat yourself. While you shouldn’t overdo on celebrating, financial planners say it’s OK to indulge a little.
5. Don’t expect miracles. Money doesn’t solve all of your problems, but it can make your life easier. Be careful not to get sucked into the fantasy that now you’re going to live happily ever after.
Source: USAA Magazine
