Create a timeline
When you’re sorting out what to do with a windfall, Boudreaux recommends breaking your plan into three parts: now, soon and later. During the “now” period, figure out what you really have to work with, including whether any of the windfall is subject to taxes. Inheritances, for example, can be taxed in six states. Life insurance proceeds, except for interest, generally aren’t taxed, gains on a home might be, and lottery winnings are. Once you determine your net dollar amount, consider shoring up your financial health by paying off high-rate credit card balances and bulking up your emergency fund.
In the “soon” stage, it’s time to develop a full financial plan for the money, including an investment strategy and management of your other debt, such as the mortgage on your home. (Don’t race to pay off that mortgage in the “now” phase, advises Columbus, Ohio, financial planner Jill Gianola. “Emotionally, it feels good,” she adds. “But from a purely financial point of view, you’re better off not paying off your mortgage, and investing and letting money grow.”)
And the “later” part of the process? That’s deciding on big moves like buying a vacation home, making large gifts to charity or family, and updating your estate plan. “Give yourself time to ensure you’re happy with your decisions before you do anything,” McCoy says.
Prepare for pleas
A windfall may bring friends or family members out of the woodwork, hat in hand, but planning for your own financial security should be your priority. If someone asks for financial help that you’d rather not give, McCoy suggests this defense: First say that you’ll think about it and promise to talk later, then practice your assertiveness skills to stay calm during the upcoming conversation. “If a person truly loves you,” she says, “they should be able to…
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