Many people dream of a sudden cash windfall. Maybe you buy a Powerball ticket every week, hoping your numbers will come up. Perhaps you put some money in a penny stock thinking that it might suddenly skyrocket and you can sell it off at just the right moment.
You might also start a company that becomes extremely popular, and then a larger business entity offers to buy you out a few years down the line. However your bank account suddenly swells, what you do next is critical. We’ve got three tips for how you can manage your new wealth well.
1. Tackle Existing Debt
It’s tough to know what to do when you suddenly get a large chunk of money. One moment you may be looking at a loan consolidation calculator to refinance your credit card debt. The next thing you know, you have more money than you’ve ever seen at one time in your life.
Paying off existing debt is usually the first thing you’ll want to do. If you have credit card debt and you’re not paying off the balance every month, you’re paying interest. That amounts to spending money and getting nothing in return. Pay off the balance on all your credit cards first.
Next, pay off any student loans in full. And if you have any personal loans from banks or credit unions, pay those off. If you have a mortgage on your house, pay that off as well. That way, all you’ll have to pay on the house every year are utility bills, property taxes, and school taxes. The feeling of being debt-free will be well worth spending some of your new wealth in this way.
2. Hire a Financial Advisor
Once you’ve paid off your debts, talk to a financial advisor about what to do with any money you have leftover. They can speak to you about options like mutual funds, stocks, bonds, IRAs, CDs, etc.
You might not be clear on all of those concepts, but a financial advisor can explain them to you in simple English and help you navigate your options. You’ll need to pay the advisor a fee, but it’s negligible compared to the expert advice you’ll get in return, which can help you grow your new wealth.
3. Consider the Next Generation
If you have kids, you’ll want to consider them next. You can put some of your newfound money in a high-yield savings account to use as a college fund for each of your children. You might also set up a trust they can claim when they reach a certain age, like 21 or 25.
You might even think about buying homes for them. The generations coming up right now are finding it increasingly difficult to get mortgages. You can talk to your kids about whether purchasing a home is something they are interested in and if you can help.
If they’re too young to move into those homes yet, you can hold onto the properties and rent them out in the meantime. That will bring in passive revenue. When your kids have grown up and can move into those homes, you can end the rental agreements you have with the current tenants.
Properties usually appreciate in value, so if your kids decide not to move into the homes you bought for them, you can sell them and make a profit instead.
Managing New Wealth is Not that Difficult
If you get your hands on an unexpected windfall, paying off your current debts is the first logical move. You can then talk to a financial advisor about starting a diverse investment portfolio, which could include buying property for your kids or for another purpose. These are all sound strategies for what you can do with your newfound wealth.
