Who hasn’t dreamed about winning the jackpot?
Have you ever imagined what you would do with the money if you did?
What if it really happened to you?
At first glance, coming into some unexpected money could seem like the answer to all your problems. But on more than one occasion, sudden fortune has been known to turn into a nightmare. Many newly rich people have fallen into the trap of believing their money would never run out.
Coming into some money unexpectedly, no matter what the amount or where it came from (lottery winnings, an inheritance, the sale of a car, a bonus at work) requires a period of reflection.
What you should do if you come into some unexpected money
1. Take the time to step back. Give yourself a few days, even a few weeks. During this time, hold yourself back from any irrational spending or impulsive buying. Instead, start thinking about your goals and objectives and write them down.
2.Draw up a balance sheet to get an overview of your financial situation. You’ll get a better idea of the amount you really have available. Find out where you stand financially
3. Determine what’s most important to you:
- Have you been dreaming about going to Italy for years?
- Would you like to pay off your debts?
- Buy a new car?
- Buy your own home?
- Catch up on your RRSP contributions?
There are obviously many options, and choosing may be difficult. List your choices in order of priority and in one of the following 3 categories:
- and long-term.
4.Make your decisions based on the 3 steps listed above. If you’ve come into a small amount of money, you’ll probably be able to make the decision yourself. But if it’s a sizeable amount, you’d be best off meeting with a financial planner. With the help of a qualified expert, you’ll be able to make the best decisions in terms of your personal financial situation and make your money work for you as long as possible.
Coming into unexpected money can also come in the form of inheriting cash, investments or property. If it’s money, you can follow the 4 steps outlined above. As for investments, is it best to hold on to them? And what are the tax consequences of inheriting property? See Inheriting investments or property for answers to your questions.
Did you know?
Lottery winnings are not taxable. You therefore pay no federal or provincial income tax on the amount you win. Same thing when you inherit cash or life insurance when you are the beneficiary. The income you earn from investments made with the money, however, is taxable, unless you invest the money in an RRSP or a Tax-Free Savings Account (TFSA). To find out more, see Your investments and taxation.
The next step
You’ve decided to pay off your debts, but you’re not sure where to start? See Pay off your debts to get a better perspective on the question. If you prefer to invest the money, see Invest according to your needs to learn the steps to follow.
If you’d like some help
A financial planner can provide a structured action plan to help you meet your personal and financial objectives. To find out if a financial planner is trustworthy, get the answer to 3 specific questions. See Choosing a financial planner.