When fortune smiles upon you, the exuberant feeling can often lead to reckless indulgence or lavish expenditures. While no one admires a petty old miser, there are some prudent steps you can take to maximize the fulfillment your new-found riches can have in your life. Consider these five suggestions to improve your financial health and ensure that the rewards that suddenly enter your life do not make a similarly hasty departure.
Give yourself an evaluation Period – Often times the closer you are to an event, the more your emotions become entangled with your decision making. In order to clear the process of any sentimental debris that could potentially cloud your judgment, consider giving yourself a large window of time to reflect on the best course of action. This time period could reasonably be anywhere from two weeks to a year, depending on the size of the financial windfall. In most instances, a time frame of thirty to sixty days should be just about right to weigh all your options and make a final decision. This is approximately one to two months of living expenses, and if you maintain the same lifestyle for that period of time then you will be far less likely to go out and develop an expensive habit right after you put your check in the bank. This is also a good time to allocate a budget for the absolute maximum you will spend on yourself. It is advisable to set a relatively low figure as the most you will allow, and then stubbornly hold yourself to staying below that number. This will eliminate the temptation to start shopping through the catalog of life, and reduce the potential for spending frivolously on ostentatious items or grandiose vacations. It is also very important to not make a firm decision about your plans for your newly begotten wealth until the end of the time period you have set. Choices made prior to that date will inevitably be tainted by passion or desires for risky behavior.
Take an honest assessment of your obligations – The first step toward knowing how much you have available after your financial windfall is to calculate the amount you owe others. This is clearly not a popular first assignment, however ignoring this task will result in many more difficulties later on. Take a candid look at your various debts, bills outstanding, and any other financial obligations you currently have to others. As uncomfortable as this thought could be, the elimination of these burdens will free you from the stress and anxiety of paying them off later. Give special attention to items like credit card balances with high interest rates, and anything with any expensive fees attached to the payment plan. If your car is nearly paid off, then explore how much you can save in interest costs by simply paying the remaining principal balance in one lump sum. Any recurring obligation that can be settled while you have more than sufficient resources to do so is a strong candidate to be paid off once-and-for-all. Armed with the valuable information of how much it will cost to eliminate your debts, you are then able to calculate how much you have left to do other things.
Give some thought as to what you have to offer – Typically, we all tend to think first about what the world has to give us, rather than what we have to offer the rest of humanity. A time of good fortune is a terrific opportunity to reverse the dynamic of thinking exclusively about ourselves and what we stand to gain from attempting to temporarily satisfy our acquisitive nature, and instead turn our attention to how we can make a profound difference in the life of someone we care about – or even a complete stranger. After all, you are the recipient of an unexpected treasure, and by sharing some of the rewards in a way that has a positive impact, then you are showing your appreciation and demonstrating that you are worthy of similar abundance in the future. By getting outside yourself and realizing the often simple aspirations of others, you will gain clarity and a valuable perspective about your own priorities. Whether you choose to donate money to a local pet adoption shelter or help a relative in need, the combination of doing a good deed and gaining consciousness of the needs of others will help you immensely in the rest of your decision making process.
Create a rainy day fund – Like Aesop’s fable about the “Ant and The Grasshopper”, it is always a good idea to have a safety net for when times are less fortunate. Although this is an increasingly difficult challenge for most of us, it is an ideal opportunity when we receive a financial windfall to create a liquid account that can be easily accessed in the event of an emergency. The size of the fund will depend on the magnitude of your financial windfall, but generally an amount equal to at least several months of living expenses should be put aside to deal with any unexpected costs or situations that arise. Having that financial cushion will provide you with the security of knowing that your needs will be met so that you can focus on building your wealth.
Save, spend, and invest – The final step to take after a financial windfall is to allocate how much you will save, spend, and invest out of the remainder of your riches. It is worth noting that the more you invest, the more you can potentially receive in the future if you make wise investment decisions. With that in mind, also consider that savings are quite similar to the rainy day fund you established in step four. Although it would not be unreasonable to want to spend some money on yourself, as was previously mentioned in step one, it is a prudent idea to set a hard limit on a total amount you will allow. After you have determined the proper amounts you will put into each category is an excellent time to consult a financial advisor to open an investment account. An easy visit to your local bank or savings institution should be all it takes to deposit the amount that you intend to put in your savings account. That leaves you with the amount you budgeted from your financial windfall to rejoice and celebrate by spending it on yourself and those around you. Be sure to enjoy yourself and always remain grateful for the generosity you have received.
By following these five simple steps, you can enjoy the present and be prepared to enjoy your future even more. If you make the right choices and invest your windfall wisely, you may have many more times with good fortune ahead of you.