WE’RE USED to seeing money as one of life’s limiting factors. But if you receive a financial windfall, money may no longer be the limitation it once was. While that might sound liberating, it can also create anxiety. The reality is, constraints serve a useful purpose: They provide structure. Without that structure, you may find yourself feeling rudderless.
I experienced this when I received a windfall several years back. I remember walking into an Apple Store, with the intention of buying something just because I could. After wandering around for a few minutes, though, I walked out empty-handed, realizing that there was nothing I needed or even wanted.
If you find yourself in this situation, without the structure of normal budgetary constraints, what should you do? It took a while to find my way, but here’s an approach that seems to work well:
Don’t sign on any dotted lines. If your windfall hits the news, your phone may start ringing with pitches from brokers and other eager vendors. My advice: Ignore them. Ultimately, you might want to hire a financial advisor, but it’s best to conduct that search on your own terms. Don’t just choose the advisor who happens to be quick enough to call first. In fact, his or her speed in contacting you may indicate that the advisor puts more energy into hunting for new clients than helping existing ones.
Set priorities. Spend time by yourself—or with your spouse—creating a high-level allocation for the funds. Engage in some soul searching. Ask yourself what goals are most important. Then, assign dollars accordingly. These might include retirement savings, gifts to family, charity, a rainy day fund and major one-time purchases, such as a new home. You could also allocate a portion to serve as an “endowment” to support ongoing living expenses.
Recognize that sleeping at night is a valid goal. You may want to allocate extra “safe money” to ensure peace of mind, regardless of the market’s ups and downs. I know one windfall recipient who insists on keeping $1 million in her checking account. That might sound extreme, but these choices are entirely personal and subjective.
There is no perfect recipe for managing a windfall. Still, by introducing structure like this, you should find yourself achieving more of your goals, with less stress.
Adam M. Grossman’s previous blog was Take It Slow. Adam is a Boston-based investment advisor. An advocate for financial literacy, he regularly teaches an adult education class titled “You Can Outsmart Wall Street.”