So you’ve received a lump sum from an inheritance, retirement buyout, lawsuit settlement or the lottery. Before you order champagne for everyone, now is the time for a rational financial planning session, lest your windfall vanish as rapidly as it appeared.

You can spend your money (perhaps the most tempting option), save it, invest it, or use it to eliminate your debt. Or perhaps even put some thought into early retirement. Even if your windfall won’t make you a millionaire, with careful planning you can still use it to make progress toward your financial goals.

TIMELINE FOR SUCCESSFULLY MANAGING A WINDFALL
Ready, set, do nothing. While most people dream of unexpectedly receiving a large sum of money, when it does happen it’s common to experience a wide range of emotions, from euphoria to guilt to fear. These strong emotions can impair decision-making skills. Put off any financial decisions until your new reality sinks in.

Assess your goals. Now is the time to think about what financial security means to you. Ask yourself:
How much will you need to live comfortably in retirement?
How much do you want to set aside for your children’s education?
Are there any large purchases, such as a home, you need to make?
What dreams are now within your reach? Maybe starting a new business?

Determining your biggest goals will help you chart a financial course of action.

Seek advice from a tax professional. Nearly every windfall has tax ramifications. Consult a CPA to make sure you’re prepared if and when the bill comes due from Uncle Sam.

Cover the basics. Before you make any purchases, frivolous or otherwise, make sure you’ve covered your financial bases. First, pay off (or at least take a major bite out of) any high-interest debt you may be carrying. Then, contribute to or start an emergency fund. And finally, consult an insurance professional to ensure that you have adequate life, disability, homeowner’s, and personal liability insurance.

Get professional investment advice. Once you’ve strengthened your current financial plan, set your sights on the future. Consult a qualified financial advisor to map out an investment plan that suits your timeframe, goals, and risk tolerance. A disciplined investing strategy will greatly increase the chances of having your windfall become a gift that keeps on giving. When you speak with your financial advisor, don’t forget to work together to determine an amount you can spend however you wish. After all, what’s a windfall without a little well-planned extravagance?

THE BOTTOM LINE
Financial windfalls are rare opportunities. Make the most of yours by taking the time to assess your priorities so you can make choices that offer the greatest benefit to your long-term financial wellbeing.