Financial Mistakes To Avoid When Receiving An Unexpected Cash Windfall

There might be some time in your life where you receive cash windfall unexpectedly, be it from lawsuit settlement, property sale, salary bonus, etc. A cash windfall is a large financial gain that mostly happen unexpectedly. When receive this kind of fortune, most people tend to be more careless in making financial decision. It is recommended that you consider all the potential benefits before making any financial decision. Hence, you can make better decision that could impact your long-term financial goals.

 

Avoid these financial mistakes when receiving cash windfall

Your money is your decision to make. However, it is best that you make informed financial decisions especially when you aim for long-term financial goals to help you build steady life. Therefore, avoid these most common financial mistakes when receiving unexpected cash windfall:

 

Financing anything that does not appreciate

Some people receive unexpected windfall such as winning a new truck in raffle. Many of them choose to sell the truck and buy a BMW. It means they take on the liability of depreciating asset. It will be more beneficial if they sell the truck and invest the cash such as in stocks instead. This way, they will reap five times that amount. Hence, it is highly recommended that you finance something that does appreciate when receiving a windfall.

 

Spending all the cash right away

It is understandable that with cash from unexpected windfall, it feels like effortless money you can just spend on anything you want. However, it is more recommended to not spend it all right away. Instead, keep the cash for a period of six months to 12 months in  a bank savings or money market fund. It will help cover an inevitable unexpected expenses such as corresponding tax bill, etc.

 

Buying something you’ve been dreamed of

Most people use their cash windfall to buy an item they have been dying to have for a long time. However, it is not a wise thing to do. Avoid treating cash windfall like a large bonus. Instead, treat it like an investment for the future. You may use it for emergency fund to bring your peace of mind to your financial situation and future.

 

Paying off large debts

While it is not wrong to pay off your large debts with the money you receive from such unexpected windfall, it is best not to do it. It is because human nature often takes over. You might incur new debt and increase your lifestyle spending after paying off your debts. It may cause another huge problems in your future. Hence, it is more recommended to invest the money and continue making payments on your debts.

 

Too stingy to yourself

While spending all your cash windfall right away is not a very wise thing to do, you deserve a celebration from receiving such fortune. Hence, it is fine if you want to take small amount of it to celebrate or to share with others who helped you achieved that success. Celebrating is just as important as saving it for rainy day.

 

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