Receiving a financial windfall can often change a person’s life. Winning the lottery may come to mind, but most windfalls occur through more traditional means such as the sale of a family business or property, an insurance or legal settlement, a large pay increase or an inheritance.

While a sudden surge in income or wealth can feel like the answer to financial concerns, if not handled properly (like going on a spending spree and buying a new car), it could cause more problems than it solves.

Thankfully, there are steps you can take to ensure the benefits and security of a windfall last as long as possible.

Making your new wealth last

If you suddenly come into a large amount of money:

• First, determine if the windfall is taxable or non-taxable. If it is taxable, address the tax impact right away. It may be tempting to delay, but paying promptly can prevent owing a large sum the next tax season.
• Second, take a careful look at how much you are netting, not receiving. Base your financial decisions on the actual after-tax amount, not the pre-tax figure shown on the paperwork. Then determine how this new wealth fits into your current financial situation.
• Third, when reviewing your finances, ask yourself if you have adequate retirement savings, three to six months of emergency savings or outstanding debt. Your priority should be making sure you have enough money for both immediate and long-term needs.
• Finally, once those priorities are addressed, you may want to use any extra funds to realize some dreams, help family, pursue an interest, take a vacation or support a favorite charity.

Work with a professional

Although there are smart ways to handle a windfall on your own, there are times (for example, if the dollar amount is very large or the financial and tax implications are highly complex) when the best move is to meet with a financial professional.

A financial advisor can work with you, along with your attorney, accountant and insurance agent, to determine the best approach. For instance, if you are debt-free and up to date on your retirement savings, you may want to consider:

• Investing in stocks, mutual funds, real estate or business opportunities.
• Setting up trusts for your family.
• Buying additional life insurance.
• Adding to a college savings fund.
• Purchasing other financial products to protect your income and assets.

The point is that a windfall does not necessarily have to be earmarked for spending or paying bills. A financial professional can help you put this money to work and strengthen your financial security — both for you and your family.

Choose the right path for your unique situation

It may sound like a challenge we would all love to have, but handling a financial windfall intelligently is not as easy as most people think.

If you suddenly come into money, start by taking the four steps mentioned above and contact us to discuss strategies that can help make the most of your newfound wealth.