Financial matters
It’s every fortysomething’s fantasy: You’re struggling along, trying to squirrel away cash for the kids’ education and your retirement expenses, not to mention the never-ending parade of heat, hydro and phone bills. Then, suddenly, a big chunk of money lands in your lap. Now you have the latter-day version of Aladdin’s lamp — a windfall, with the potential to make all your dreams (or at least some of them) come true.
That fantasy may well become a reality for a number of us. Perhaps a buy-out package becomes available at work, or (hallelujah!) you win the lottery, or maybe, on a sadder note, a parent dies, leaving behind a hefty inheritance. What to do now? That’s going to depend largely on how much money and what stage of life you’re at financially.
5 tips for keeping the boat afloat when your ship comes in
With money comes responsibility, says Diane McCurdy, the author of How Much Is Enough?, who has been doling out financial planning advice in Vancouver for some 25 years. “Your aim should be to splurge a little and have fun, but ultimately, to make your life better over the long term.” Her suggestions:
- Get some advice. If you’ve suddenly come into some money, it’s time to meet with a financial adviser and reassess your financial picture. Things to discuss: where to park it, spending plans and potential investments.
- Pay off personal debt. After you’ve had a little bit of fun, debt reduction should be your first priority. Target high-interest debt first and move on to the mortgage. “What that gives you is more disposable income every day,” says McCurdy. “It ultimately puts more money in your pocket and that gives you more of whatever it is you want — whether it’s experiences, or buying things or time with your kids or grandchildren.”
- Consider the tax implications. However your windfall came to you, you want to shelter as much of the money as possible. Take advantage of unused RRSP contribution room, suggests McCurdy. “We’re fortunate in Canada that we can carry it forward and use it all up.” And don’t neglect to set aside money to cover a deceased friend’s or relative’s tax bill if you’ve inherited their estate.
- Invest wisely. It’s always difficult to know the right time to invest in the market, says McCurdy. The only thing to do with a large lump sum is to feed it into your portfolio over the course of a year or so. Aim for a basket of stocks, bonds and cash holdings that won’t leave you sweating and shaking at night. And “don’t leave it sitting in your chequing account earning no interest. At least put it in a GIC.”
- Don’t kill the goose. If you are able, live on the earnings from your investments, but don’t touch the principal, advises McCurdy. “People win the lottery and then spend it all on a new car or home. Or they give it away because they think it’s so much money. What I suggest is that you use the interest to do things. With $1.5 million, you can buy a car every year, but if you buy everything all at once, you’ve just killed the goose that laid the golden egg.”
Still struggling with financial decisions? See how three women turned their windfall into bigger and better things in What to do with a windfall
This article originally appeared in the December 2007 issue of More
