What To Do With A Financial Windfall

– What to do with a windfall, yes, a big juicy inflow of money. Now you might go, well,
Ann, hey, quality problem. Well, for many people it’s
not a quality problem. It’s a real problem, because most people actually have no idea how to handle a big inflow of money. But not just even a big inflow, it might be a smaller inflow. Maybe it’s a year-end bonus at work. Maybe you’ve got a tax refund. Maybe you got a nice raise. Maybe you inherited some money, so that could be some bigger chunks. Maybe you got a divorce settlement or a life insurance payment. Maybe you’ve been working on a side gig, and you’ve got some
additional money coming in. So, it can be a whole range of this additional money coming in. And for many people, without
actually having a strategy or plan to how to deal with inflows, two big, bad things happen. One, it just flows
straight out of their life, because if they’ve got a dodgy
or dysfunctional money flow, all of that additional inflow will do is magnify that money flow. Now, if you don’t know about money flows and whether you’ve got a
dysfunctional one or not, go and watch that video. But so, what happens, that
dysfunctional money flow just gets magnified by
the increase of money, and then when that windfall is dried up, when it’s no longer flowing in, they actually ended up with a wider or bigger dysfunctional money flow. So, it’s like a river comes in. There’s a big flood happens,
boff, it bursts the river banks and then it all dries
up and now you’re left with just bigger river banks. And this is one of the
reasons why most people who get a big windfall,
a divorce settlement, an inheritance, a lottery
win, maybe some kind of payout from an insurance, it
could be from an accident, actually end up in a
worse financial position within two years from when
they got that windfall. It’s also one of the reasons that over 94% of all big earners in the sport and entertainment area, musicians, movie stars, big sports stars that get a lot of money for a short period of time end up in really, really
bad financial positions, because they’ve never been
taught what to do with it. But, maybe your windfall
is that tax rebate. You want to have a strategy. So, what do you do with it? The most important thing to
do when you have any kind of bigger chunk of money flow into your life is neutralise it. Because here’s the thing. As humans, we treat money from different sources differently. We have one mindset or
behaviour around money that we’ve earned that we’ve worked for. You can go, oh, my hard-earned money. And so, most people have some kind of way that they manage that money. But windfalls, people often
go, oh, you know, free money. Oh well, it’s cheap, it came in. And so, often people will treat it with a lower value, it’s potential. Hence, why it makes it
so easy to flow out. People say, oh well, you
know, I didn’t work for it, so let’s go on that
holiday or buy more things or get that car or whatever it is. They’ll treat that money differently. So, your very first step is
to neutralise this energy, the beliefs we have around
the meaning of that money. Because all money is equal, but we create different
weird identities around money from different sources. So, how do you do that? Everybody should have what
I call your reservoir, your dam account. This is also really important as you start getting more
asset-generated income, that you have an account where
all money sources flow into, and this should not be your
day-to-day transaction account, because it’s not about spending it. This is a catchall account where investment property income
comes in, dividend income, your other passive businesses
and windfall goes in. So, it can all neutralise. It can spend a little bit
of time in that big dam, and it can blend with money
from the other money sources and your actively-earned
income should come in there, so it ends up all just being money, not free money, earned
money, investment money, which we can have different behaviours. Money is money. Now, you then need to have
a money management system, something like wealth pie, about
how to allocate that money. So, let me give you a refresher. So, key things with a
windfall that you want to do. The very, very first thing
that you want is increase, a big lump of that needs
to go to your freedom, and the more of that money that you can put to freedom, the better. This is to your investments, to assets. Remember, if you create assets, those assets end up working
for you over and over and over again, as opposed
to just spending that money, because once you’ve spent it, it is gone. Whereas if you convert it into assets, it’ll keep earning for you over and over. So, you want a minimum, a
minimum of 10% of that windfall to go to investments. Now, if it’s a big, sizeable windfall, or if it’s something like an inheritance, a death benefit, a divorce settlement, you want 90% of that going to assets, because that money is
designed to look after you. But in the interim, I’m talking
about maybe a tax rebate. Now, we’re gonna come
to the more dividing up. So, pay yourself first. Pay your freedom first,
is where that first chunk of money needs to go. And you can look at your
tax-efficient mechanisms. Have you utilised your
tax-protected investment parts? Your ISA allowance, your Roth allowance, your tax-free savings account allowances. Make sure you top those up first. Have you fully utilised your
retirement funding allowance for that year? Are you in a country where you can go back and utilise previous years’ allowances? So, top those up, because
that enables your investments to grow free of tax and be
more efficient as you go. So, pay yourself first. Buy investments with a
large chunk of that money. The next thing to do is pay
down and clear consumer debt. That is that contraction debt. This is not neutral debts, not
your mortgage on your house, and it’s not expansion debt. This is not debt that
you’ve taken on to control and buy assets like
investment property debt or gearing in businesses. This is straight consumer
debt, credit cards, overdrafts, store cards, your car loan, student loans, IOUs, short payday lenders, all of that hideous stuff
where you’re paying interest on that money that’s just
without something against it, get rid of that. And remember that every bit of debt you pay is
actually a wealth strategy, because it increases your net worth. And remember, your net
worth is your guiding star. That’s what you’re focusing
on is building your net worth to get to your freedom number, so that you don’t have to
work if you don’t want to, because your assets
are doing all the work. So, that’s really key. Create assets, blitz your debt. Both of them are going to
increase your net worth. Now, the next thing is build
up your cash safety net and for your emergency fund if you don’t have that already in place. Emergency funds, so go and watch the video on what does that mean, getting that protection pate in place. This amount of money that is to serve you for things that are expensive
coming down the line, but also for emergencies, and
money that you can feed off in an interim period of time, so you can allow your assets to grow. We’re starting to get
into draw down strategy, but you always want a chunk of money that you can live off, if
you’re not earning actively, but also as part of your intention that you’ll then feed off a cash element when you’re actually drawing down and feeding off your feast. So, build up your cash safety
net and your emergency fund, really important. Then the fourth aspect,
allow yourself to indulge, have some fun, celebrate
some of that money but not all of it. Don’t blow it, but I’m
also not gonna be the ooh, you can’t have fun. As you know if wealth pie,
you need to be having fun with your money. If you’re not doing that,
something else will happen. It will blow up in a
big, messy money drama. We need to be satiating our desires, having joy, celebrating life, but that’s the key thing,
make sure you’re spending it on things that you really enjoy. So, indulge, have fun and
really get value from that rather than just some unconscious, like how quickly can I
get rid of the money. Allocate some of that to really things that you want to do. And then, fifth element
is allocate some of that to your growth. Think about, what is
an area that you can go and get some more education in, some more knowledge you can gain. Is there a course you need to do? Or want to do? Is there a teacher you want to work with? Is it something that can increase your earning potential actively? So, maybe you’re an amazing photographer, but you want to get that next distinction on how to get even more
extraordinary photographs, so you can put more onto passive earning and earn more royalties
off your photographs. Do you wanna learn how to
invest in another asset class? Do you need to get a property mentor or learn how to do rent to rent? What about investing in the stock market? Can you increase your skills or do you want to start
on online business? Do you need to learn how to market that? And so, allocate some
money for your growth. So, there you go. Key thins with your windfall. Most important, neutralise it. Secondly, determine
whether it’s a big lump sum that’s been designed for you to live off and feed off for a long time. If that’s the case, you get
it invested and working. If it’s a smaller inflow,
like some lottery win, not that I’m a big
proponent of that at all. In fact, I think the lottery is hideous, but if it’s a tax rebate or
an extra bonus that come in, look at these different five areas. Freedom first, saving,
paying down consumer debt, allowing yourself to
indulge and have some fun and allocate some to keep growing you. So, there you have it. I’m Ann Wilson and I’d love to know in the comments below, what
have you done in the past with a inflow? Have you had a strategy? And now, having a strategy, what difference will that make
in your life going forward? And please share in as much detail, any ahas that you got from this video, because that will also really help others that come here who are also looking at growing their financial freedom and financial savviness and
their relationship with money, so they too can get to
live their greatest life. And remember, your
freedom is always created just by one step at a time,
so keep taking those steps. Until next time, keep living
that rich, juicy life. (logo thuds)

2 thoughts on “What To Do With A Financial Windfall

  1. I was paid out my provident fund, I paid off my credit card and my car. I left my bond because I "think", (I was advised), to leave my bond as I am earning money and would be liable for tax so need to "balance" that. The rest I put into another retirement annuity. I did not think to spoil myself as paying off my credit card was indeed a "bravo" moment .

  2. Thanks Ann great video as always,I should put this on replay until it is hard wired in to my brain. I did come into a little bonus did spend some on my self new duvet and cover. But the wealth pots are essential especially for your freedom figure. I did work out my net worth the other day a good exercise. I think I need to define my pots exactly so I can divvy any surplus up. Have my emergency fund but am saving for a boiler among other household items.

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