Make The Most Of Found Money

09/27/00

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