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What to do in a financial windfall

Updated: Nov 30, 2018


I have to admit, a little seed of jealousy creeps up when I hear of a friend or acquaintance who just inherited grandma’s house or who’s company just went public. It seems like the Financial Windfall is always happening to someone else though…


Financial Windfall: When it's raining money, grab a bucket!

Good financial habits are the same regardless of the balance in your checking account. The same rules apply - saving 15-20% of your net income will provide many more opportunities and options in the future.


If you have an extra $1,000 or an extra $100,000 you may feel paralyzed by the sudden windfall. For many millennials like myself, we lived through the financial crisis of 2008 and we’ve become a bit skeptical of putting money into the market.


But the risk of letting that money sit in your account as cash is greater than the risk of investing it. We KNOW inflation will erode the value of your nest egg. Inflation is when things cost more over time. If you have $30,000 from stock options on your company that IPO'd, that $30,000 will not be as valuable in 20 years. Your purchasing power will have decreased.


The only way to combat the effect of inflation is to get a return on your cash by investing. When you invest your money has the potential to group and the magic of compounding can take hold.


Here are the top 3 things to do in a Financial Windfall:


1. Establish your emergency fund. 3-6 months of living expenses in a savings account to provide a cushion should you lose your job or have an unexpected expense.

2. Pay down debt, start with the highest interest rate credit cards.

3. Save for retirement - Invest in your 401k or IRA, this is tax efficient and will set you up in the future.


Have fun! Know what your goals are - maybe it’s to invest in a startup, buy a Tesla or go on a cruise. Different goals will determine what to do with your cash but knowing your goals helps you define your idea of fun instead of letting that windfall languish.


In summary, a random bag of money isn’t an excuse to go to Neiman Marcus. It’s an opportunity to finally establish a solid financial plan. Get moving!

Questions?

sarah@simplifyfinancial.com

Financial District:

115 Sansome St

Suite #200

San Francisco, CA 94104

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Simplify Financial Planning , LLC is a registered investment adviser offering advisory services in the State of California and in other jurisdictions where exempted.

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