Falling into a large sum of money can be tempting for anyone, but what you decide to do with that money can go a long way or be completely wasted if you’re not careful.
It really doesn’t matter where the money came from; it could be an inheritance, a lottery win, a holiday gift, or even a work bonus. What you want to do is make sure you don’t spend it all since that’s the easy thing to do.
The amount of money you fall into also makes no difference, whether it be $500 or $500,000. What you decide to do with the money requires some sort of plan so avoid the following mistakes and consider the other options that will help you keep your money longer.
- Spend, spend, spend
You’d be forgiven if your first response is to spend since our brains are pretty much wired that way, but do there are smart things to spend your new found money on. If you happen to have any high-interest debts owning then tackling them is the most logical starting point.
Once your debts are cleared, that doesn’t mean you should spend freely; you do want this money to last right? Consider topping up your emergency fund or contributing to your RRSP. Regardless of what you decide to do with the money, remember you can run out of it so keep track of your spending.
- Ignore expert advice
The first thing you should do with your money is to park it in a high-interest savings account. You basically want to keep your money safe and earn some interest until you get advice from a financial planner.
You might not need advice if you only inherit a few thousand dollars, but it doesn’t hurt to talk to a professional since they can advise you on how to manage your cash flow and make your money last longer.
- Quit your day job
We all dream about winning the lottery and quitting our jobs, but is that a realistic option? If you win $1 million, it may not last you the rest of your life, especially if you’re young.
Before you put in your letter of resignation, figure out how this money will help improve your life. The majority of people won’t be winning the lottery, but maybe an inheritance will give you enough flexibility to quit your job and pursue a new career.
- Think your money will last forever
Millionaires and lottery winners have all gone bankrupt for one simple reason: they spent more than they had. As people make more money, or in this case come into more money, they spend more. This is referred to lifestyle inflation.
Even if you’re working with a professional and you’ve invested your money, there’s no guarantee that your money will last forever. It’s okay to buy a few nice things, but you need to control your spending.
- Give it all away
Donating to charity and helping family pay down debts are noble things to do, but you do need to watch out for people who will come looking for handouts. Getting an inheritance is pretty private so the odds are you won’t be bothered, but if you win the lottery, your face will make a few headlines.
The money you earn, win, or inherit is yours and you should feel no obligation to part with it because someone thinks you owe them. Money is supposed to solve problems, but you’ll quickly find that it can create new ones.
Flickr: Will Keightley