Last December BMO Financial Group released a report titled A Sudden Windfall: A Blessing Not a Burden.The report revealed that before receiving a windfall a little over half of surveyed Canadians aged 35 and over stated that achieving a desired lifestyle during retirement was their main concern.
When asked to imagine receiving a large amount of money, a new priority emerged. Almost two thirds said they would like to share with family, friends, and charity.
Close to two thirds wanted to pay off debt and just under half wanted to make additional investments in stocks, a business, or property. Paying off debt and making investments are consistent with the original objective of preparing for retirement.
Examples of receiving a significant amount of money include winning the lottery, an inheritance, a legal settlement, or selling a business.
My recommendations on how to deal with sudden wealth are the same as how to deal with financial matters on a regular basis.
Start by having a written financial plan. Often there can be conflicting financial priorities and a written plan is a good exercise to determine what goals are most important to you and your family.
Paying off debt is often a good idea. Start with debt that has the highest interest rate. For most, that will be credit card debt. Mortgage debt can be reduced or eliminated. You will have to check your mortgage details to understand what your options are.
It would also be a good idea to set up, or top up, your emergency fund to cushion any financial blows life can throw at you.
I recommend you prepare cash flow projections as a way of ensuring you will be successful in achieving your financial objectives. For example, if you want to assist your children with their post-secondary education, what is the anticipated cost and where will those funds come from?
Having funds and financial objectives is part of life. Having a financial plan will help you achieve the things that are most important.