Everyone has dreamed of getting a “windfall” of some sort at one time or another. Perhaps it is an inheritance from a long lost Uncle, winning the Lottery or having the “Prize Patrol” show up on your doorstep. Sometimes the money can come from less than joyful circumstances. In some cases it can be the result of a settlement for some sort of injury or lawsuit. Unfortunately, if you don’t have experience handling money your windfall can be short-lived. For this reason many settlements are in the form of an annuity so you will get a certain amount every month (or year) for the rest of your life.
At first, getting a lot of money can feel like a tremendous boon. But, without the right money management skills many people find that their settlements become exhausted far too quickly. In fact, many people wind up taking on more debt than they can manage by simply misjudging their overall spending power. Fortunately, there are a number of things that you can do to build self-discipline and avoid financial hardship. Following are several money management tips that all settlement recipients can take advantage of.
Seek Help
One of the first and most important things to do when receiving a settlement is to seek professional financial help. A financial adviser can point you towards sound investment opportunities that will help you grow your wealth. This person can also give you information concerning taxes and your settlement that will help you avoid legal issues further down the road. Just be sure that he is licensed and really has your best interests at heart. Often commission based advisers want to “churn” your account earning more commissions for themselves thus eating through your nest egg. If you don’t have any experience investing, rather than investing in individual stocks you should consider balanced mutual funds which are generally less risky and are preferred by most financial planners.
Deal With Taxes
The nature of your settlement and the related lawsuit could result in significant tax liability. Receiving an annuity settlement that provides monthly payments is just one of many ways to lower your tax rate. Working with an accountant and consulting with your attorney will allow you to take advantage of the best strategies for limiting tax liability.
Maintain A Normal Income
When possible, it is best to maintain regular employment after having received a settlement. Although you might be tempted to start a new business venture, this may not be the best way to manage your settlement money. Having a solid financial base will certainly give you more options when it comes to branching out on your own, but it is always important to consider your ongoing cost of living and the amount of time that it will take for a new enterprise to become a profitable one. No matter what your future plans may be, maintaining a steady and consistent income until these plans come to fruition will limit the amount of settlement money that is exhausted along the way.
Treat Yourself
It is important to set a small amount of money aside to treat yourself. You might want to plan a vacation, take care of an important home repair or improvement or purchase a new car. A specialist from myLumpsum.com recommends consulting with your financial adviser about creating a budget for recreational spending. Separating money for luxury or personal desires from the outset will help you to avoid overspending.
Settlement money should never serve as license to spend irrationally and without limit. Those who are able to successfully manage these funds can enjoy a lifetime of financial health. With diligent financial planning and good self-governance, you can retain more of your settlement and can enjoy a far higher life quality over the long term.
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