Coming into money, especially when it’s unexpected, is one of the most exciting and desirable events you can experience. It’s no surprise, then, that a 2023 Empower report found that 71% of Americans bought a lottery ticket with the hopes of winning a pile of cash.
Whichever way you acquired the windfall, from receiving an inheritance or being awarded a substantial job sign-on bonus, it’s important to manage it wisely. Here nine ways to make your newfound wealth work for you, now and into the future.
1. Check Your Emotions
You might expect to feel nothing but thrilled when you get a windfall, but don’t be too surprised if negative emotions also creep up.
According to Jennifer Reid, a personal financial manager based in Boston, it’s not uncommon for people who have struggled to make ends meet to say the influx of cash brings on more stress than they anticipated. “They worry about doing the wrong things,” Reid says. “They’re panicking.”
Take the temperature of your psychological well-being. If you’re not sleeping well or you feel anxious, undeserving, guilty or just simply out of your element, consider using a portion of that extra cash for therapy. A trained professional can help you deal with your emotions, enabling you to make conscious decisions that are in line with your values as you navigate your new financial circumstances.
[Read: Inside the Psychology of Overspending and How to Stop.]
2. Avoid Making Purchases Right Away
Avoid making expensive purchases until you have taken a thoughtful and holistic approach to your money. Think about all the things that you really want to buy. It could be a vintage Porsche or vacation to the French Riviera. List these dream items and experiences, then tuck them away. Don’t make any of the purchases until you’ve settled all of your other financial affairs.
“Take a minimum of six months to a year to get settled in,” Reid says. “Let your emotions cool off too. Don’t act out irrational behavior and take the time to do your research.”
Review your wish list frequently, then adjust with additions and subtractions. This will help you determine what’s most valuable to you. Some may still be worth the price, while others may not.
[Wants vs. Needs In Your Budget — How to Tell the Difference]
3. Confide Carefully
Although it may be tempting to shout to the rooftops about your newfound riches, it’s best to take a temporary vow of silence. This is not your opportunity to gloat, share details about your fortune on social media or tell random friends and relatives. You don’t want to open yourself up to an abundance of strangers asking for donations — or to potential fraud.
“You could get a random niece coming out of the woodwork asking for money,” Reid says. “If it’s not someone you would give to before you came into the money, don’t do it now.”
Confide only in trusted individuals about your newfound wealth. These typically include a spouse or partner and very close friends.
4. Turn to the Experts
If you don’t have a strong background in money management and investing, this is a great opportunity to do some research so you can make informed decisions. Becoming comfortable with these topics can take months if not years, though, so for now turn to the experts.
“Seeking the help of an experienced financial advisor is wise,” says William Bevins, a certified financial planner from Nashville, Tennessee. “Taxes, rules and the world of finance are complex. A little advice can go a long way toward helping avoid costly mistakes.”
If you don’t have a financial advisor, look for one in your area. You will want to discuss ways to minimize taxes, various investment strategies, insurance products to protect your money and estate planning.
[Read: How to Choose a Financial Advisor]
5. Delete Debt
“Regardless of the windfall, financial freedom isn’t achieved until outstanding debt is eliminated,” Bevins says. “Consumer, credit card and student loan debt should be addressed first.”
Although this may not be the sexiest way to spend your windfall, it’s the most prudent. And when those balances are gone, the fees and monthly payments associated with them will be, too. This will alleviate any pressure you may have been experiencing, and you can finally move forward.
6. Boost Emergency Savings
Having a savings account that you can dip into in times of need is smart. Without it, you may turn to high-interest credit products to handle an unexpected expense — or worse, you may have to do without.
If you don’t currently have cash in savings, use at least part of your windfall to start an emergency fund. How much you need to have squirreled away depends on your expenses and comfort level.
Tally your basic household costs, such as housing, transportation, food, utilities and medical expenses, then multiply that figure by the number of months that will make you feel most at ease. A good rule of thumb is to have three to six months worth of those expenses set aside.
7. Plan for the Future
One of the best uses of a windfall is to have that money grow over time with sound investments. Consider your long-term goals.
You may want to save and invest for a down payment on a home, or for your children’s college education. Or, you may want to increase the amount you set aside for retirement. Per IRS rules, in 2023 the total contributions you make to all of your traditional IRAs and Roth IRAs can be $6,500, or $7,500 if you’re 50 or older. This could be your perfect opportunity to get back on track.
Your financial advisor will be able to suggest the different investment vehicles that will get you where you want to be, but knowing what is truly important to you will be your North Star.
8. Support a Cause
Another place to allocate some of your windfall is a charity, which can also help reduce the amount you pay in income taxes.
“If you itemize your deductions, you may receive a charitable deduction that can lower your tax liability,” says Sally Herigstad, retired certified public accountant and financial expert from Vancouver, Washington.
“What kind of windfall you get is important, too,” Herigstad says.
“Gifts you receive like an inheritance, disability from a plan you paid into and certain legal awards are not taxable. Others, like winnings and prizes, are considered income, so [they] are taxable. However, if you give any of the money away, it can still be a charitable deduction,” she adds.
You also get to support a cause you love, and have the chance to really make a difference.
9. Finally, Enjoy Yourself
Once you’ve considered all the money-smart methods to manage and spend your windfall, you can safely treat yourself.
Return to the list of dream items that you have created, then prioritize. Which do you still have the money for and would make you the happiest? What it is doesn’t have to make sense to the rest of the world. As long as the splurge is personally fulfilling, you’re ready to enjoy it.
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Spend a Windfall Wisely originally appeared on usnews.com
Update 10/20/23: This story was published at an earlier date and has been updated with new information.
