Managing a Financial Windfall

Posted on Tuesday, March 15th, 2011

by Amy F. Merrill, CFP®, Principal, Windham Brannon Financial Group, Inc.

How emotional it must be to have an event that yields a significant amount of money…I use the word emotional because the causal event could be the loss of a loved one, the loss of a marriage, the sale of a business, the start of retirement (and resulting payout of significant comp packages), the exercise of stock options, the winning of a legal judgment, or even, yes, the winning of a lottery.

Many times people think that receiving such a large sum of money will set them up for life.  However, the news is full of individuals that have won millions of dollars in the lottery and months later are living in worse situations than prior to receiving the money.  Whether this is due to issues stemming from money management, estate planning, or asset protection (or some combination of the three), making uninformed decisions could jeopardize one’s future.

So, the question is, “How do I avoid this?”  Some practical advice from The Bogleheads’ Guide to Investing is worth noting:

  1. Pay any taxes due. You do not want a surprise on this topic.
  2. Take one or two percent to treat yourself and your family. If you receive a windfall, by all means do something special. But do it modestly. How much is 1-2%? It’s $10,000 to $20,000 on a $1,000,000 windfall.
  3. Consider using some or all of the money to pay off debt. As unglamorous as this sounds, it’s often the wisest course of action. If you have existing debt, use your windfall to get rid of it. This will free up cash flow, and provide more flexibility with decisions in the future.
  4. Deposit the rest of the money in a safe account. Put it someplace that will earn you interest while you decide what to do with it.
  5. Do not touch the money for several months. Allow the initial emotion to pass. Get over the initial urge to spend the money on a big house or a fancy car. Live your life as you have before for a few months (this gives you time to select your advisors).
  6. Get professional help. Do not obtain advice from somebody who might profit from your money or try to sell you products or services that you might not need.
  7. Develop a ‘wish list’. Take the time to make a list of things that you would like to do or experience, what you would like to give to others (whether family or charity), or what you would like to buy.  Write it down…it will give you something to refer to in future months or years.

Assembling Your Team

One of the most important pieces of advice is building your financial team.  Take appropriate time to select the members of this team, as they will help you make good decisions with your wealth and bring discipline to financial decision making.

What types of advisors do you need?

  • Financial Advisor – select an advisor who is a Certified Financial Planner (CFP®) and does not sell products and services for their personal profit.  CFP’s have training in all key areas of financial planning and an help to be the quarterback in their client’s overall financial picture.
  • Tax Advisor – select not only a CPA, but a CPA that has knowledge in dealing with wealthy individuals and families.  If you are a corporate executive, then you will want to work with a CPA with knowledge in key areas of executive compensation.  If you are a small business owner, then your tax advisor should easily speak to issues that affect small business owners like yourself.
  • Attorney – depending on your family needs, you might only need an estate attorney to draft Wills, Powers or Attorney (healthcare and financial), and possibly some Trusts to own your assets.  It is important to work with an attorney who specializes in this area of practice.
  • Banker – seek a banker who wants to serve your banking needs (not your insurance, investment and estate needs as well).
  • Insurance Agent – whether it is life, disability, long-term care or property/casualty insurance, work with an agent who understands your needs (not working to serve their own).

Navigating the waters of new found wealth can be difficult without the right people helping you make decisions that meet your needs.  At Windham Brannon Financial Group, we strive to assemble a team that aligns with your goals and needs.  More importantly, we will give you advice that will be what you need to hear, not always what you want to hear.

To read more about Windham Brannon Financial Group, please visit our website at or contact us by phone at 404-898-2000.

The Bogleheads’ Guide to Investing by Taylor Larimore, Mel Lindauer, Michael LeBoeuf ©2006  Published by John Wiley & Sons, Inc.


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