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HOW TO RETIRE EARLY
MONEY DECISIONS IN YOUR 20's FOR EARLY RETIREMENT IN YOUR 40's.
Terrible with Money? How to Handle A Cash Windfall
Posted on: 2/4/2018
By: Vivienne Mitchell
cash windfall
“I’m really scared. I can’t even be excited, because I am so worried. This is probably the last big pay-out I’ll get in my life and I just know I’m going to blow it.” 

My housemate’s voice emanated earnest trepidation. We were sharing a celebratory pizza on the steps of our Queenslander, but his demeanour was far from cheerful. It was the day before a $25,000 inheritance was to clear into his bank account and he was terrified. I told him to make an appointment with a financial adviser. He said he would, but we both knew he didn’t really mean it.
Six weeks later his initial fears were proven well-founded.

By then, all that remained of his windfall was a pile of Uber Eats bags and a half a dozen empty cigarette packets strewn across his childhood bedroom. Once the money was gone he could no longer make rent and had to move back in with his mum. According to the landlord, he was so far in arrears there was more chance of finding life on Mars than of getting a bond refund.

The whole thing was a tragedy – not in the colloquial sense that we use the word today, but bitter a tale wherein the protagonist’s downfall was brought about by his own folly. It was truly cringeworthy stuff, but also life lesson I was glad to have not experienced personally.

When most of us read stories like this, we have a tendency to assume that:

a) This couldn’t happen to us because there’s no reason we’ll suddenly come into a hefty sum of money and;
b) If we did have a massive windfall, we’d surely spend the money on something worthwhile.

The reality, however, is that you’d be wrong on both counts.
Most People Receive a Lump Sum in Their Lifetime
Contrary to widely held belief, you likely will receive a sudden windfall of money at one point in your lifetime – and no, it probably won’t have anything to do with winning the lottery. Instead, financial good fortune is often due to: 
Inheritance
This is the most common way everyday Australians receive a windfall. Approximately 69% of Australians plan to leave an inheritance, and when it comes to being chosen as a beneficiary, a 2017 report by the Australian Housing and Urban Research Institute revealed:
“Over the course of 2002–12, approximately 1.8 million Australians inherited money on one or more occasions. At current prices, the average amount of each inheritance (conditional on being a beneficiary) was $79,000…”
This means 7.9% of the Australian population received an inheritance in that ten year period. This figure is predicted to rise significantly as the Australian population – 15% of which is already over 65 - ages and dies.

According to the Australian Bureau of Statistics:
“All states and territories experienced growth in people aged 65 years and over in the year ended 30 June 2016. The largest increase in this group was in the Northern Territory (6.2%), followed by the Australian Capital Territory (4.2%), and Western Australia (4.0%)” 
Of course, not every family has money to bequeath, but receiving an inheritance is a life event that you can’t rule out entirely – especially if you’re single and don’t know what your future spouse’s financial background will be.
Life Insurance
Because superannuation funds are now required to include life insurance coverage, more Australians than ever have a policy. In fact, 61% of Australians have a policy through their superannuation, and insurers claim up to 62% of families have some sort of coverage.

This, in turn means that more Australians than ever before are beneficiaries of policies that are typically worth around $220,000 (when held through super) – a lot of money in anyone’s books.
Business
Granted, this type of windfall isn’t usually sudden, free, or unexpected. But, if you’re one of the 2 million Australians who own a business, you should be just as prepared for success as you are for failure. 

Everyone knows that small business owners (who represent 97% of all Australian business owners) live lean while they’re getting off the ground, which makes them even more vulnerable if they do end up flipping for a large profit later down the track.
Most People Receive a Lump Sum in Their Lifetime
If I could go back in time, I would have done a lot more to make sure my old housemate had a detailed and highly actionable plan in place before he received his inheritance.

As John Beckley famously said:

“Most people don’t plan to fail, they fail to plan”
So, what should you be doing when there’s a boatload of money on the horizon and it’s headed your way?
Keep It a Secret
If your financial woes dissolved overnight, could you resist posting a Facebook or Twitter status about the good news? Mark Gardiner, a British man who came into £11 million in the largest lottery win at the time, said that he found it much more difficult for people to be happy for his success than it was to find people who would commiserate with him at times of his life when he was down and out:
"It's everyone's dream to win the lottery and you'd think that people would be happy for you and it's all roses and you know, sunlight and light and love and care. And then you see this other side of green eyed monster, jealousy, resentment, envy ... That was the nasty part that I've seen of the lottery." 
When it comes to your windfall, you can save yourself a lot of turmoil and protect yourself from potential scammers and thieves by keeping your good fortune under wraps.

The only people who really need to know are:

• Those who you trust with your life: Tell your partner, your immediate family and your very best friend, but only if you’re completely sure they will take the news well and keep it to themselves.

• Professionals: You’ll need to keep a handful of professionals in the loop, including your lawyer, accountant and financial advisor. More on this later.

Do Nothing Other Than Pay Your Debts
When you have a little money, opportunities to make even more money will suddenly appear everywhere: A friend has a brilliant business that needs a small cash injection to get off the ground; The share market – which previously meant nothing to you – now looks like easy gains just ripe for the picking; You notice a primely located property is on the market at a very tempting price.

But, no matter how time-sensitive an opportunity seems, resist the urge to invest. Pouring your money into hastily made plans is often just as frivolous as going on a lavish shopping spree.

The best thing to do is park your money in a high-interest savings account and keep living within your means while you carefully map out your next move.

Don’t quit your job. Don’t buy a business or a boat. Don’t start giving away your money to friends and family who are in desperate need of a loan.

Just pay off any immediate, high-interest debts (credit cards, personal loans) and wait.

Employ Professionals to Come Up with a Plan
Whether you’ve come into $10,000 or $1,000,000, it’s imperative that you get sound, professional advice from someone who will always act in your best interest. A little bit of time and money spent organising your finances in the beginning will pay off well into the future.

Professionals that you’ll need help from include:

Solicitor
You’ll need legal advice for everything from creating/updating your will to creating trusts and reviewing any business or investment contracts you enter into. Solicitors can also give you personal financial advice, but to do this they must have an AFS licence or work for someone who does. 

Accountant
Before you spend a cent of your newly found wealth, you need to understand how much tax you must pay. Otherwise, you could be caught out with half of the money you thought you had or – even worse – a huge tax bill that needs to be paid after the money is long gone.

Licenced Financial Adviser
Find an independent, licenced financial adviser (sometimes called a financial planner) to help you understand what your investment, superannuation and life insurance options are. To find out if a financial adviser you’re considering hiring is qualified and capable, you should:

• Check the ASIC Financial Advisers Register to make sure they’re licenced.

• Ask about their qualifications – advisers should at the very least have a diploma in finance, economics, accounting or financial planning.

• Ask for a copy of their Financial Services Guide. This will have information about an adviser’s services, pricing, employer and links to product providers (such as big banks).

• Ask if the adviser is a linked with any professional bodies or industry associations -they usually have a code of conduct for their members.

• Steer clear of any adviser who only wants to sell you products or investments in one company.

The Bottom Line
When it comes to your finances, you need to be prepared for not just the worst-case scenarios, but also for the financial events we all dream of.
If you, or someone you know, is fortunate enough to come into a lot of money - whether that be by inheritance, an insurance pay-out, a profitable business, or something else - remember:

• Don’t broadcast the news;
• Pay immediate debts; then,
• Get professional advice on what to do next

Follow this advice and, unlike my old housemate, you’ll have peace of mind that comes with telling your money where to go, instead of wondering where it went.

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