Are you expecting a financial windfall? Receiving a large inheritance or other sizable sum of money is a stroke of good fortune that most of us believe only happens to other people. But it’s actually much more common than you might imagine. While drawing that winning lottery ticket remains highly unlikely, chances are quite good that most people will receive some significant financial windfall during their lifetimes — whether it be the sale of a business, an inheritance, legal settlement or life insurance.
According to a recent study, 65% of Americans will receive some sort of large one-time payment during their lifetimes. That’s roughly 2 out of every 3 people, which means you are more likely than not, to be the beneficiary of such a circumstance.
As wonderful as this might sound, receiving a large sum of money can be a life changing event that dramatically alters a person’s circumstances. Unfortunately, without good financial discipline, people often make ill informed decisions that quickly deplete these assets.
In this case, looking at the history of lottery winners is actually quite instructive. According to a study by the National Endowment of Financial Education, an estimated 70% of those who win the lottery or receive another large sum of money, are completely broke in less than 5 years.
If you yourself receive a windfall, start by taking a giant step back. It’s a good idea to delay any impulse purchases, and first, develop a plan that meets both your short and long term needs. Certainly, this includes a budget that takes into account your new financial situation but also the impact of taxes. Develop an investment plan that turns this once in a lifetime opportunity into a benefit that supports you and your family for many years to come.
Sources: National Endowment of Financial Education.