Ask Stacy: What Should I Do With a Windfall?

Wednesday night's $700-million Powerball drawing has rekindled an old question: How should you handle a lump sum of money that lands in your lap? Here's a step-by-step guide for doing things right.

4. Grow the rest

If you’re fortunate enough to inherit $850,000, one cool thing to do with it is to make it into $1.7 million. How? By investing it. If you’re not sure what to do, now’s the time for a little research. Check out articles like “How Do I Invest in the Stock Market?” for tips, including:

  • Don’t be a dope: Day trading, penny stocks and buying based on rumors are sucker bets.
  • Don’t put all your eggs in one basket: Diversify: stocks, real estate — maybe even turning a hobby into a business. Spread it around.
  • Kiss the money goodbye for a while: One of the luxuries of a windfall is it allows you to invest longer-term without worry. Things like stocks and real estate take time to blossom. A windfall buys you that time.

That is, provided you:

5. Expect the unexpected

The only thing that’s certain in life is that nothing is certain. Always keep some powder dry. If you put all of your money into things that fluctuate in value, like stocks or real estate, and then need the money, you could be forced to sell at the worst possible time.

Your emergency savings go in a bank or money market fund. These accounts will pay nearly nothing, which can be discouraging, but it’s better than being forced to fire-sale illiquid investments. Don’t think of these savings as a wasted opportunity. Think of them as what they are: an insurance policy.

Always have at least six months’ living expenses in your emergency fund. A year’s worth would be better.

6. Seek expert advice

It’s best to hire an expert if your windfall is of considerable size. Interview several financial advisers who are paid by the hour — never by commission. And don’t ever deal with anyone without checking their credentials.

Ask friends for referrals, check the National Association of Personal Financial Advisors, preferably both.

And don’t ever simply turn money over to someone else and forget about it. Helping you understand your investments is a professional’s job. Being responsible for your own money is yours.

7. Enjoy yourself

Last, but definitely not least, use some of your money to treat yourself to a great experience, like a trip to a place you’ve always wanted to see. One of the main reasons to have money is to enjoy it.

Obviously, the weight you’ll put on the steps above will depend largely on the amount of your windfall. Inheriting $400,000 is different from getting a $2,000 bonus at work. But the principle is the same: Take your time, think it through and decide how best to use the money to get the things you want from life.

Got a question you’d like answered?

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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

Got any words of wisdom you can offer for this week’s question? Share your knowledge and experiences on our Facebook page.

About me

I founded Money Talks News in 1991. I’m a CPA, and over the years I’ve also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here.

Got more money questions? Browse lots more Ask Stacy answers here.

Stacy Johnson
Stacy Johnson @moneytalksnews
I'm the founder of Money Talks News and have spent the last 40+ years in the personal finance trenches. I'm a CPA, author of a few books and multiple Emmy recipient. I'm ... More

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