If you come across a significant amount of money, whether it is from an inheritance, gift, lottery, or other means, it is natural to feel overwhelmed with what to do with it. Depending on how you received the funds, your emotions can vary from the joy that a lottery can elicit or sadness from an inheritance given by a loved one. These emotions can influence how you manage the funds, from impulsive spending to even possibly guilt.

When someone experiences a sudden cash windfall, there are many common questions that arise: Should I use the money to pay off debt, invest or just spend it? Do I have the means to retire immediately? Can I start supporting my family and friends? Should I finally buy the things I have always wanted? To ensure that you effectively meet all your financial goals, it is important to consider some of the financial planning issues below.

Initial considerations

A passage of time is often required to fully adjusted to newfound wealth. It is recommended  to postpone any decisions regarding the use of the money until you have emotionally adjusted to your new situation. While you are taking time to adjust to this new life, consider allocating some of those funds into safe investments that yield some income such as Treasury Bills and cashable GICs. These investments provide guarantees and allow you to liquidate the investments when you are ready to make more significant spending decisions. Some people may even consider a portion to be “fun money” to treat themselves. With that said, it is still important to not make impulsive decisions that could impact your financial well-being in the future.

Take your time with this whole process, so you are able to find the right advice best suited for your circumstances. It is ok to say ‘no’ to requests from family and friends until you have taken the appropriate amount of time to put a plan in place and evaluate what you would like to accomplish.

Wish list and priorities

The first step is to start formalizing a wish list including both needs and wants. Examples include:

- Pay down existing debt such as car loans, credit card balances, and mortgages

- Setting up a nest egg to ensure you can retire comfortably and meet your long-term needs

- Renovating your home

- Buying a new home, investment property or a cottage

- Gifting and helping family members and friends

After creating a wish list of how these new funds can be used, the next step is to rank and prioritize these various items. The ranking process will be dependent on your personal preferences but also your current financial situation. Making a list of all your current financial needs will help determine how the funds should be prioritized to meet all your goals. For example, if you have high interest paying debt, it may be prudent to use the funds to eliminate this debt before pursuing other goals. This reduction in debt can help with future cash flow and in turn accomplish other goals you might have in mind. Our team can work with you to help better determine what items on the wish list should be prioritized so your money can work harder for you.

Creating a financial plan

After establishing a prioritized wish list, crafting a long-term financial plan is the key to ensuring that you are on track to meet all your objectives. Once it is evident that your long-term goals are achievable, you can focus on the short-term objectives. Speak with one of our team members and we can formalize a personalized financial plan to ensure you are on track to meet your objectives.

Make sure you pay the tax man

With newfound wealth, the downside is potentially paying more taxes. In most instances, inheritance and lottery winnings are received tax-free with certain exceptions. With that said, any of these new funds directed into investments that generate future interest, dividend, rental income and/or capital gains will be taxable unless directed into registered accounts. Therefore, any investment considerations need to factor in the potential tax consequences.

By following some of these suggestions, you are on your way to ensuring your new-found wealth will provide you and your family the most benefits.