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Windfall income- How to manage it wisely

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Windfall income- How to manage it wisely

People sometimes get windfall financial gains in the form of business/asset sales, property sales, inheritances, companies going public and money received through alimony/litigation/lotteries among other sources. However, using these windfall gains in a wise manner is necessary in order to get the most out of them.

Here are some tips in this regard:

  • If you are undecided on how you would like to use these added funds, you should take your time and think over it. Till then, keep them in liquid yet short-term funds which are safe and keep giving you some returns.
  • You should take financial advice on the best way to invest these gains. Try and identify someone who is honest and has a good track record.
  • Taxation needs should be carefully checked. In case you are selling property or a business, you should talk to your financial advisor/CA with regard to planning the taxes. Try and plan taxes well in advance, particularly if you are selling a stake/business. Put the payable tax in a separately held fund in order to make sure that it keeps earning some money until you have to pay up the same in the applicable financial year.
  • Have clear financial goals in place. You should clearly write down the needs to which you can apply the money that you gained and also purposes for which ready money has to be kept aside. You can take professional help to make a solid blueprint. Make sure you keep updating and revising financial goals depending on various situations.
  • Have a contingency plan in place. You should cover all non-life and life based risks and the plan should help you get a clear picture of how the windfall income can be deployed for meeting your own goals. Try and close loans with higher rates of interest such as personal loans and credit card debts. You should go on with your home loan however as per experts. Once all goals are covered, try and think how best you can invest the remaining amount with a goal towards enhancing overall wealth creation and security for the next generation.
  • Always have a plan for suitably allocating assets which should be based on factors like your specific financial goals and appetite for risk. Prior to gaining the windfall, you may have thought of a more aggressive strategy for driving growth in terms of asset allocation. However, gaining a windfall may help you structure asset planning in a bid to carefully preserve wealth. As a result, your overall exposure may go up in case of debt-based investments as compared to equity investments.

 

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