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10 tips: Manage your windfall wisely

By Times staff writer
© St. Petersburg Times
published November 10, 2002

If you recently received an inheritance from a loved one, sold a business or took a lump-sum distribution from your retirement plan, you may be confronted with a problem you never anticipated: What in the world are you supposed to do with all that money? Okay, that may not sound like such a terrible problem to have, but it does require you to make careful choices. Consider these tips.

1. FEEL OVERWHELMED? That's normal. Your windfall may trigger strong emotions that can lead to indecision about what to do -- if not outright paralysis. People often feel guilty about inheriting money, fearful about making significant financial decisions or lost after selling a business.

2. A TAXING DECISION. Yet another issue commonly sparks financial paralysis: the tax man. Almost any decision you make is bound to have tax consequences, some more serious and immediate than others. Seek advice from accountants or financial planners.

3. IT'S OKAY TO DO NOTHING AT FIRST. Take the time you need to consult with more than one financial expert and weigh all the advice you get. If you must take action on certain matters, be careful not to let those deadlines pass you by.

4. DETERMINE WHAT YOU HAVE COMING. Especially if you've inherited money, you're likely to receive bits and pieces of different kinds of investments at different times. This can be confusing, but it's important to figure out exactly what you're getting -- and when you're getting it -- before you devise a plan of action.

5. SET SHORT- AND LONG-TERM FINANCIAL GOALS. Do you need to pay off debt? Pay for a college education? Beef up your retirement savings? Create an emergency fund? Remodel the bathroom? Write each goal down and ask yourself where you might be 15 years from now if you pursue it.

6. MAKE A BUDGET. It might sound like a basic suggestion, but even large sums of money can evaporate quickly if you don't have a budget to help you keep spending under control.

7. BE FRUGAL ABOUT SPLURGING. It's normal to want to spend at least part of your newfound money on something fun, like a new car or a vacation. Make an upfront decision about how much you'll devote to such pursuits, and stick to it. Put that money in a separate account.

8. DO SOMETHING. At some point, you have to decide how to invest your windfall. Be sure to spread the risk by diversifying your holdings.

9. DON'T BE DUPED. If your windfall is public knowledge, you could become easy prey to unscrupulous individuals and organizations. Devise a budget and an investment strategy before giving to any groups or causes. When you're ready to give, research the charity thoroughly.

10. REVIEW YOUR ESTATE PLAN. Have a lawyer update your will or draw one up for you if you don't already have one. Think about setting up a trust if you want to pass your holdings on to children or a charity.

-- Compiled by Laura T. Coffey. Sources: Kiplinger's Personal Finance magazine (www.kiplinger.com); MSN MoneyCentral (www.moneycentral.com); Northwestern Mutual Life Insurance Co. (www.nmfn.com).

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