Whether it’s unexpected or expected, consider these smart tips to make the most of your good fortune
Sure, the odds of winning the jackpot are astronomically low, but let’s be honest – we’ve all fantasized what it would be like if we actually won. A new car, a European vacation, early retirement. This of course ignores the statistics that show up to 70% of those who win a large jackpot prize go bankrupt within three to five years.
But there are other types of windfalls: a bonus, an inheritance, a life insurance payout, or the sale of a property or a business, for example. Whether expected or unexpected, there’s no denying that a windfall can be a life-changing event.
Found yourself with a sudden influx of funds? Here are some tips to help you make the most of it.
1. Stop, think and breathe
First things first, take a deep breath and let it sit. Don’t rush into any quick decisions. Take stock of your current financial situation, including any outstanding debts, savings and financial goals, and begin to formulate a plan. Thinking before acting will help you resist the tendency to spend your windfall right away.
2. Keep it quiet
Unfortunately, along with your newfound wealth comes susceptibility to fraud and scammers. One way to stay safe is to keep a low profile, particularly if you’re dealing with a large amount. Consider keeping your news confidential (or share it only with a trusted few) and resist the urge to share it on social media.
3. Surround yourself with a trusted team of professionals
Take stock of your new financial reality and work with a group of experts you trust. Consider partnering with a financial planner, investment advisor, accountant and/or a lawyer, who have a fiduciary responsibility to put your needs first. They’ll help you re-envision your short-, medium- and long-term goals and adjust your plan accordingly.
4. Create a wealth plan
Together with your Richardson Wealth Advisor, create a wealth plan incorporating your windfall and run different scenarios based on your short, medium and long-term goals. Be conservative in your projections, allowing for economic uncertainty. Creating a plan won’t just give you peace of mind, but it will also indicate how much of your windfall you might be able to designate towards a little splurging. Who doesn’t want that?
5. Plan for income taxes
Depending on the source of your windfall, you may be subject to Canadian income taxes. Here’s a quick overview of what you could expect:
Proper planning can help you minimize tax liabilities and maximize the impact of your windfall. Be sure to consult with a tax professional to understand your obligations and find the best tax strategy for your situation.
6. Think about life insurance
Having life insurance in place can help reduce the stress of wanting to preserve as much of your windfall for your heirs as possible. It allows you to celebrate your good fortune but at the same time it’s a mechanism to ensure your estate will not be overly eroded – and it may even increase its value.
7. Consider philanthropy
Passionate about giving back to your community or supporting charitable causes? Consider allocating a portion of your windfall towards charitable giving. Research organizations or causes that resonate with you and explore ways to make the most meaningful impact. Philanthropy may also generate potential income tax savings.
Incorporating life insurance as part of a planned giving strategy can help you boost your giving. Not only that, but you can use the insurance to restore that donated capital to benefit your heirs.
8. Celebrate responsibly
Don’t forget to plan some fun into your financial projections. Spending a portion of your windfall can be reasonable, especially if it’s for something meaningful or to improve your quality of life. Just make sure you have a solid plan in place for managing the rest.
Want to learn more?
Listen to this episode of our Conversations on Wealth podcast: “Managing a financial windfall.”
We can help
We can help you address these, and other questions related to your estate planning needs.
Talk to a Richardson Wealth Advisor.
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[1] 2012 survey commissioned by Credit Canada Debt Solutions and Capital One Canada
[2] What are the chances? – Statistics Canada (statcan.gc.ca)
[3] OLG | LOTTO MAX Winning Numbers | Past Results | Lottery | Ontario
