Everybody has dreamt about scoring a cash windfall at least a couple of times in life. The idea of sudden wealth allowing you to pay off your bills, buy your dream home, and live a financially stress-free life is pretty alluring. What many people don’t consider are the negatives that often come part and parcel with a large financial windfall.
When people are lucky enough to gain a large windfall through an inheritance or because they decided to explore 20€ no deposit bonuses and got lucky, they aren’t always prepared for what comes next. A sudden influx of cash can be difficult to manage, so you may blow through it faster than you assumed and suddenly be left with nothing all over again.
Let’s take a look at some of the reasons why windfalls can turn sour and what you can do to prevent that from happening.
You Have No Experience Managing That Much Cash at Once
You hear about it all the time: a person who had previously been living paycheque to paycheque wins a huge amount of cash. It is a life-altering event, and nothing can prepare you for it. That is the problem, though—you have no experience handling that much cash at once. Sure, the same basic financial principles that you previously used still apply, but now on a much grander scale.
With that said, it’s far too easy to mismanage your cash and quickly spend it all. There is nothing worse than coming into a windfall, imagining how it will change your life for the better, only to end up back where you started—or worse—because you mismanaged your money.
You Miscalculate Your Outstanding Debt Total
This brings us to the next issue: miscalculating your outstanding debt. When people come into a huge windfall, it’s natural to want to pay off their debt right away. However, they might forget about certain debts, assume the debt total is lower than it actually is, and other similar issues.
Before paying anything off, it’s best to make a list of everything you owe along with the interest rate you are paying for that particular debt. If you don’t come into enough money to pay off all your debt, you want to pay off the items with the highest interest rate first. Be sure to also keep track of everything you pay, as you may still have an outstanding bill the next month or two as the final amounts trickle in.
If you want an exact total of what’s outstanding, it’s always best to contact the entity (the credit card company, the bank where the loan is being held, and so forth), and ask for the current outstanding amount. That will be the total amount due as of the date you contact them.
Your Budget Is Thrown Out the Window
One big reason that your windfall can turn sour is that it may prompt you to throw your budget out. You may think since you have this large influx of cash, there’s no longer any need to worry about budgeting.
The fact is that a budget can and should be used by anyone, regardless of their financial status. It just makes good financial sense to track your income and bills so you can eliminate waste and be aware of how much you have left at the end of the month. A budget can also alert you to any potentially worrying trends, such as spending more money each month than you can afford to. This may be okay in the short term, but it won’t be sustainable over the long term.
To help get your budget under control, financial experts recommend using a budget planning app. Choose one that allows you to track expenses in real time so you have access to stats at any time. Some great personal budgeting apps to check out include You Need a Budget (YNAB), MoneyWiz, Spendee, Wally, and PocketSmith. Most of these are available for Android and Apple users. Depending on the app you use, you can also track upcoming bill payments, set reminders, track multiple income streams, set over-budgeting alerts, and even share the budget with your significant other.
You Don’t Invest or Save Some of the Money
It can be very tempting to spend all that money you came into on some big-ticket items, but that is short-sighted. Financial experts always recommend you look at your long game. In other words, what can you do right now that will help create a financially secure future for yourself? One example is retirement. If you don’t think ahead to your retirement years, what age you want to retire, and what money you’ll be using, you can set yourself up for disaster.
A good plan is to set aside a percentage of your windfall and put it into a high-interest savings account or invest it. Investing money can result in growth, giving you even more cash to access later on. The European stock market allows you to invest in all different stocks, diversifying your options and thereby helping to eliminate some of the risks involved. If you’ve got a large sum of money to invest, it’s best to work with a professional financial advisor who can offer invaluable advice.
A Windfall Can Be a Blessing and a Curse
Some events in life are positive while others are negative, but when it comes to a huge windfall of money, it can truly be a blessing and a curse.
It’s wonderful to come into that much money, and it’s exciting to imagine what it means for your future, but if it’s not managed properly, the windfall can quickly sour.
