When you are used to struggling with money throughout your life, financial windfalls – such as an inheritance or a lump sum payment like a lottery win – can at first be incredibly welcome. But the reality is that they can also be dangerous. Many people end up wasting their inheritances, and as most people know, bankruptcies amongst former lottery winners are incredibly common.
The problem, of course, is that when you are not used to having large sums of money, you don’t really know what to do with it. With this in mind, we’ve put together this short guide to ensure you don’t waste a penny of your lump sum payments, and use it to wisely to help you secure a sound financial future. Read on to find out more.
Pay off your debts
The first thing you should do with any lump sum is to pay off your debts. Don’t forget, debts are always costing you money, and getting rid of them will be a weight off your shoulders in more ways than one. Make your debts your priority and it’s like wiping the slate clean – you will also free up a lot more money from your monthly wages because you won’t have minimum payments or interest charges to face.
Create an instant emergency fund
Next, put aside enough money to last you anything up to six months of your current income. Doing this simple act will mean if anything happens to you tomorrow you will ba able to continue your current lifestyle unaffected for the next half a year, and will give you an important buffer to use before getting back onto your feet.
Consider structured settlements
Setting up a structured settlement means you put a lump sum into a plan which pays out every so often., It could be once a year, on a special date, or anything you choose. In short, it protects your money, and ensures you will ever run out. But you do need to be wary of them, too. This Stone Street Capital structured settlement review, for example, points out that some companies make a tidy profit from persuading you to sell your structured settlement. So, just be careful who you choose to work with in situations like this – you will need to have a think about whether cashing in your settlement is worth the sometimes expensive fees.
Look after your kids
If you have children, think about their future. It can be incredibly expensive to go to university these days – we’re talking six-figure sums for some courses. And if you can set up a college fund for your kids it will be giving them the best possible start in life – a university education without any of the debt.
Don’t upgrade your lifestyle
Finally, just because you have a lump sum doesn’t instantly make you a rock star. So try as much as possible to keep your lifestyle similar to it is now. Sure, you can afford the occasional treat, but the reality is that luxury costs money, and if you work in a low wage job you will soon run out of cash by wasting it on lifestyle upgrades alone.