How
Can I Make the Most of Found Money?
Answer...
Did you get an unexpected bonus this year? Or maybe the bonus was a little
higher than expected. Maybe your parents decided to start a gifting program or
your stock options have done so well it is time to cash them in. Or you
inherited money that you never expected from an aunt or better yet, you actually
won the lottery.
However you ended up with that found money, don’t let it waste away
without a plan. Seize the opportunity. Whether it is $10,000 or $10 million it
can make a major difference in your long-term financial health.
Review and implement the following checklist to put these dollars to work for
you and take advantage of that found money:
- Give yourself time to think about it.
Don’t take off for that
tropical island yet.
- Think about your overall goals and objectives
and how these dollars
can work with your financial plan. How can you use these dollars to help you
achieve your goals faster?
- If you don’t have a financial plan,
here’s a real good reason to
develop one starting right now. Planning now means a lot less regrets later.
- Hire a professional certified financial planner
to help you work
through the issues. Make sure you go down the right path for a secure
financial future.
- Think about your vision for the future.
Do these dollars change your
vision or help you get there more quickly? If your vision will change, make
sure you understand what that really means.
- Newly found wealth can really complicate your life.
You may find
yourself chased by people who want to help you spend these dollars. Use your
professional advisors to run interference for you and recognize that some of
those long-lost friends aren’t really friends.
- Learn the basics of investment
even if you hire a professional to help
you manage your money. You need to understand the reasoning behind how your
dollars are managed.
- If you are still working
, these extra dollars may mean you can now
take full advantage of your company 401(k).
- Make sure you understand what these dollars really mean to your overall
finances.
People often get an unrealistic idea of how much cash flow
this found money can provide for them. Assume you inherited $500,000, and
invest in a diversified portfolio of stocks and bonds, earning an average
annual return of 9%. That means you can take out approximately $25,000 or 5%
per year without depleting your principal, not $50,0000 or more.
- Understand where your money is going.
Establish that expense plan and
stick to it. More money does not mean you can spend what you want. No matter
how much money you have, it still makes sense to understand where you are and
what you can afford to spend.
- Take a small percentage of the money and have some fun.
You don’t
have to limit the fun, just the dollars you spend.
- If the dollars are less than $50,000,
think about funding those IRAs
or maybe your children’s college fund. Consider investing some of these
dollars a little more aggressively than your regular diversified program.
- If the dollars you receive are up to about $300,000,
you can afford to
use some for a vacation or that car you haven’t been able to afford. But
don’t quit that job unless you have some funds of your own or can live on
about $15,000 in income from your investments per year.
- If your found money is more than a million,
you now have more choices.
Are you close to retirement? Is there something different you would like to do
with your life? Spend some serious thinking time before making that big leap.
- Focus on your overall investment goals and objectives.
Structure your
investment allocation to reach your long-term needs.
by Diahann W. Lassus, CFP®, CPA
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