We all dream of coming into some money, whether a pension payment, winning lotto or receiving an unexpected inheritance from a rich great-aunt twice removed (whom we never met).
We like to dream about what we would do with the money – gifting some of it to family is right up there.
But back down to earth, what is the best way to handle a sudden large amount of cash in your bank account?
A cash windfall, no matter how or big or small is finite. Like a full tank of gas it will run out if we’re reckless with it.
The fact that many lotto winners end up broke is no myth.
UK lottery winner, Callie Rogers, today works as a maid because she blew $US3 million on shopping, cocaine and plastic surgery. Sharon Tirabassi won $US10 million in lotto too. Nine years later she was working part time and catching the bus to work so she could make rent payments.
Finance magazine site MarketWatch reports that a study of the 35,000 people who won Florida's Fantasy 5 lottery from 1993 to 2002 found that 1,900 of them went bankrupt within five years.
The researchers worked out that financial literacy was an issue, and their attitudes were more reckless to winnings than it may have been to earnings.
According to Dr Ronald E. Riggio’s article ‘The pros and cons of winning a fortune’ which appeared in Psychology Today magazine, the decision to remain in your job after a windfall may actually contribute to you staying happy. But that aside, the biggest downside to a large windfall is stress.
Demands and advice from family and friends, fear of losing the money again and a flood of people asking for money or offering their services can leave the suddenly wealthy panicky, unhappy, stressed and confused.
Riggio says the most successful winners stay grounded and maintain their perspectives.
“They are prudent, and do not engage in reckless spending or behaviour. They plan next steps and seek help from trusted investment professionals. They use the money to improve their lives and those of their loved ones. They realise that the most important aspect of winning the lottery is the freedom from financial pressures and the opportunities provided from additional resources.”
Most experts agree that there are some practical steps you may want to consider in the event of a windfall:
How you invest the money, or how you budget, is best determined with the help of independent advice, but without question the biggest challenge of sudden money is the stress it will cause you and those around you.
Once you have the money, you can afford to get the best advice to support you and help make a plan that’s best for you and your family.
Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice before making an investment decision.