Surviving A Windfall

Receiving a financial windfall sounds like a great thing, and it can be. However, many people who receive inheritances, insurance settlements or lucrative bonuses find that the windfalls can slip through their hands quickly. The good news is, there are ways to protect a lump-sum settlement or other financial windfalls.

Experts recommend getting tax advice before finalizing the terms of a settlement. Knowing how much of a tax hit will come with the money means being able to negotiate with a clearer head. Most settlements are subject to federal taxes, if not also state and local ones. Financial advisors are good sources for information about the tax rate for different types of settlements.

The first step anyone should take after receiving a windfall is to pay down bad debts. Everyone agrees on this. High-interest debt like payday loans or credit cards will continue to accrue lots of interest. Spending a settlement, or putting it in a low-interest savings account, means that the pace of the debt will continue to outstrip any earnings. That means that the settlement won’t have a positive impact on someone’s financed that it otherwise could. Occasionally, there are some more nuanced takes on this advice. For example, some student loans carry a very low interest of 1-2%, so people may still make timed payments on those while earning higher interest on an investment. But generally, it’s a better idea to pay debts down and wipe the slate clean.

After a financial windfall, it can be a good time for the recipient to take stock of what’s missing in their life. For example, if someone rents, it can be a good time to invest in a home. If someone is trapped in low-paying work, it may be a good idea to pursue a new career qualification through education. Some people also decide to start their own businesses or invest in their family and friends’ businesses. It’s a good idea to vet these ideas in a clear-headed way with help from a professional. The best investment decisions are made with dollars and cents, not relationships, in mind.

Finally, charitable deductions not only make settlement recipients feel good about giving. They’re also tax-deductible. Charitable donations should be part of any financial plan, too.

This article was originally published on HenryComteVelasquez.net