Coming into a large sum of money can be both a blessing and a curse, depending on how you deal with the financial AND emotional aspects of the newly-found money.  However, what most people should be concerned with is how this money would be best put to use. Creating a financial plan for the long term AND the short term is often the best solution.  Here’s some tips/steps to take to make sure you get the most out of this financial windfall!

#1. Assemble a trusted group of advisors.

These professionals should consist of:

  • a fee-based financial planner/fiduciary
  • an experienced CPA
  • an attorney who regularly deals with clients who experience large money events
  • and possibly an insurance professional

Since they all work for you, they should be comfortable working with each other to come up with the best solution for your scenario.  If you need to take the time to interview several candidates to hire for these positions, do it.  It’s worth it to have a trusted group that is acting in your best interest (a financial advisor who is a fiduciary can help direct traffic regarding these complex money decisions).

#2 Take some time before you spend or gift any bit of this money.

Depending on how you came into this money (inheritance, lottery, insurance proceeds, trust proceeds, etc.), there may or may not be tax consequences.  Your trusted CPA should be able to help guide you best in this area.  A good rule of thumb is to not touch this money for 6 mos. – 1 yr.  Instead, park it in some money-market accounts or CDs until financial plans have been put in place and are ready to begin being executed.  Don’t rush out and go on a crazy spending spree!

#3 Keep things quiet.

Don’t widely broadcast the fact that you’ve come into this money.  Don’t change your lifestyle overnight.  If you don’t want every supposed “friend” and long-lost relative to ask for your help with their money woes, try to let only a very select few people know about this event.  Otherwise, you will feel the pressure from others to act before your financial plans are in place.  No one should know who you don’t want to know, so make sure those that you tell won’t open their mouths to others re: your recent change in wealth status.

#4 Stick to the financial plans you’ve created (with your trusted advisor group).

Depending on your age, goals, health, etc. there are things you probably want and would like to do with this money.  Certainly some of the money should be earmarked for fun (a good rule of thumb is no more than 5-10% max); the rest should be used prudently for whatever major financial goals you’d like to work towards achieving.  Paying off debts is usually a wise place to start (being debt-free is always nice); saving enough for retirement is usually a big goal for most as well.  Whatever the financial goals are that you have, make sure that you will always have enough money to attain said goals.  With that being said, our last step is…..

#5 …..review the goals (at least) on a yearly basis.

If semi-annual reviews give you better peace of mind, then – by all means – go with that time frame.  Or quarterly even – it is your money, after all.  You can’t get from point A to point B successfully if you don’t know what lies ahead of you.  Life changes, things happen, and plans may need to be modified to deal with these new situations.  Do yourself a favor:  you don’t plan to fail, so don’t fail to plan (and don’t fail to review said plan)!

If you do happen to come into a large sum of money, don’t be in that group that makes emotional financial decisions.  You’ll find that you’ll run out of your money very quickly (look up how many people who hit the lottery actually go broke shortly thereafter!).  Now that you’re armed with this knowledge, I hope you get to take advantage of it at some point in the future.

Find an experienced financial advisor who regularly advises his/her clients to create solid financial plans, works for an RIA firm, earns his/her money from fees (NOT commissions), believes in having an abundance of investment choices for clients, and has the heart & demeanor of a teacher, NOT a salesman, and chances are you’ve found the right financial advisor to help you prepare and plan for your financial goals.

To learn more about Martin Federici at MF Advisers, view his Paladin Registry research report