The purpose of Money Talk is to improve readers' financial capability with research-based personal finance information.
Friday, August 24, 2018
Handling Financial Windfalls
The Financial Planning Association (FPA) and Association for
Financial Counseling and Planning Education (AFCPE) recently held a webinar
called What to Do When Your Ship Comes In.
Below are five key take-aways:
¨Windfalls can be
defined as any unexpected receipt of money that is larger than what someone is
accustomed to dealing with. By this definition, windfalls are fairly common.
Windfalls of varying dollar amounts can be viewed differently depending on a
recipient’s income and assets.
¨There are many sources
of windfalls including tax refunds, insurance and legal settlements, divorce
settlements, inheritances, the lottery, stock options, proceeds from the sale
of property, and more.
provide a sustainable source of long-term wealth if handled properly.
Unfortunately, many people lack financial knowledge and experience to handle
¨Many people who
receive windfalls experience a range of emotions including euphoria (which can
lead to overspending), depression (feelings of unworthiness or guilt), anger
(e.g., rage from being injured in an accident), grief (e.g., mourning the death
of a loved one), and distrust (e.g., wondering if people want you for your
money). These emotions can lead to poor money decisions.
recipients need time to accept their “new reality.” They also need to develop
long-term plans for the use of their windfall that are consistent with their
values. It is okay to “park” money in a cash asset (e.g., money market fund)
until long-term plans are fully fleshed out.