What to Do with a Windfall

Wed Aug. 21st 2019

Maybe you've realised some investments, sold a property, or received an inheritance – however you've come into some money, the question now is, "What do I do with it?" If you're asking that, well done – the best use of money is the considered one. Without a plan, it's surprisingly easy to fritter away tens or even hundreds of thousands of dollars on, seemingly, very little.

Smarter use of money

Maybe you've realised some investments, sold a property, or received an inheritance – however you've come into some money, the question now is, "What do I do with it?" If you're asking that, well done – the best use of money is the considered one. Without a plan, it's surprisingly easy to fritter away tens or even hundreds of thousands of dollars on, seemingly, very little.

A big windfall that's over and above what you were planning on is the perfect opportunity to build your future. That's because the best investments are made with money you 'don't need' – if you're not counting on it for survival, you have more options to make longer (or riskier) investments that will, in all likelihood, offer better returns. But investment doesn't just mean buying shares or snapping up a rental. Of course, building on your wealth may be a priority, but equally you may have other dreams and goals. The most important thing to do is to hatch a plan, so you know you've used this money wisely.

Here's what to do.

Pay off consumer debt, build an emergency fund

Whatever you choose to do in the future, you'll want expensive debts paid off first. Do that as soon as possible and save yourself from the interest on store cards, personal loans or credit cards. If you don't have an emergency fund, now is also the time to set something aside – aim to have enough to cover three to six months of your living expenses. Put it in a high-interest savings account and try to forget it exists!

Do you have anything left over? Here's what's next.

Stop and think

Take some breathing space to think about what you want to do. In the meantime, sock your money away in your savings account. The return might not be the best, but there's little or no risk – your nest egg will be safe while you take a good look at your financial position.

It might be a good idea at this point to talk to a financial advisor. You'll have a clearer idea about how your windfall might affect things like your tax obligations, your investment goals and your estate plan, if you have one. Big life changes – early retirement, travel, a new car – can all be possibilities, but before you jump in the deep end, it's better to know exactly where you stand financially first.

Setting goals

Like any good plan, you must always start with asking yourself, "What do I want?" Do you want a retirement that's a little more lush than you're currently planning? Do you want to make it easier for your grandchildren to attend university? Do you want to do a second OE and see the world? There are no rights or wrongs here – but being honest about what you really want is a great place to start.

Here are some options you may wish to consider:

-Go freehold or invest

One action you can take is to pay off your mortgage, if you have one. A freehold property is your best asset when you retire. Or, if you're already freehold, you might get into property investment. Your windfall could make buying a rental easier and more profitable.

-Start your investment journey

Sit down with a financial adviser and investigate which investment option is right for you. If you already have investments, your advisor can help you decide where to go with them, and what adjustments to make.

-Reinvent yourself

Now that you have the money to afford it, it's never too late to learn a new skill, start a business or make a hobby into a career. Take a wood-carving class, open that specialist shop, or leave work to concentrate on selling your prize-winning cakes. Your windfall could be the catalyst for a whole new you.

-Go shopping

Are you already debt-free, with a retirement plan in place? Why not use your windfall to live a little – take a trip, buy a boat, do up your house. Shop for new clothes, replace your worn-out furniture, invest in art for your home. Treat yourself.

-Donate

If you'd like to share the wealth, even if you also have your eye on the tax advantages, some of your windfall could go to your favourite charity. That could be a one-off cash contribution, or a regular donation for ongoing support.

-Invest in your family

A family trust is a good way to share your windfall with young family members in the future. You'll get a tax break by gifting the money to the trust, and you can decide what the funds will be used for – travel, education or property, or even all three.

Review your estate plan

Now you have a plan, does that change anything about your estate? It's a good idea to review your estate every three to five years, or if anything significant happens. A big windfall counts as "something significant and is a good time to look things over. This is especially true if your estate's size or complexity has changed.

Plan your future, realise your dreams

If you're lucky enough to receive a substantial windfall, it's always a good idea to stop and think about how it will impact on your financial goals, your plans for the future, and your life in general. That way, you can make the best, most considered use of that extra money, and even realise some long-held dreams, whatever they may be.

Get financial advice for your windfall – give Cave Financial a call, to help you consider your next best steps.

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