Opportunity knocks…

Seriously, what would you do with a windfall?

EVERYONE wants a call from the Sunrise Cash Cow.

Whether it’s an unexpected inheritance, winning on Lotto or at the races, we can all dream of a big windfall.

But it’s generally not the actual windfall which really counts … it’s what you do with it that’s important.

Rather than changing your life for the better, you hear so many stories where this windfall has been squandered and it’s ruined lives.

So to avoid getting a call from a journalist after you’ve gone from boom to bust, here are our tips for managing a sudden cash bonus.

1 IMMEDIATELY PARK IT IN A HIGH INTEREST ACCOUNT

The first thing to do with a windfall is immediately get it working for you and step back.

Don’t go buying a car or splashing it around on impulse purchases, no matter how tempting that might be.

Remove the temptation by stashing it away in a high interest account not linked to your ATM card and take at least a couple of weeks to cool down before any significant purchase.

2 CELEBRATE A LITTLE

It would be silly to suggest a sudden windfall shouldn’t be celebrated. If you get the Cash Cow call, treat the family to a nice dinner, shout your mates a drink at the pub or whatever it is you do to celebrate.

We’re not saying go blow $1000 at the casino just because you can, but be sure to take the chance to celebrate. Life’s little wins are important to enjoy.

3 GET ADVICE

Getting good advice is crucial to making good financial decisions, especially where big sums are involved.

Tax law can be tricky to navigate and investments difficult to gauge, so seek out a good financial planner to nut out the smartest plan of attack for your windfall.

It will be the best investment you’ll ever make.

4 GET RID OF BAD DEBT

Part of that financial advice will be to knock any bad consumer debt on the head. There is no point investing in shares or property for an 8-12 per cent return (which you’ll pay tax on) when you’re paying 14-20 per cent interest on outstanding credit card balances or personal loans.

Eliminating high interest bad consumer debt is almost always the best way to spend extra cash, even though it seems like the least exciting.

5 INVEST FOR THE LONG TERM

Locking your windfall away in long term investments, like superannuation, is the key to building long term wealth.

It’s always hard to contemplate locking away spare cash until retirement, but it is still a terrific investment ... just make sure you understand the rules and get good advice. Here’s a little example why. If you were to invest $2000 each year from age 19-25 at an average return of 10 per cent (5 per cent interest plus 5 per cent growth) and stop investing at age 26, you will have invested $14,000 in total.

At age 65 your nest egg will have grown to $930,641, or 66 times what you put in. That’s the magic of compounding, or earning a return on a return.

6 DONATE TO CHARITY

If you’re lucky enough to have a windfall that clears all personal debts, allows you to tuck some away for retirement and celebrate a little, give a thought to donating to charity.

It’s a terrific way to improve the standard of living of others less fortunate, comes with a huge feel-good factor and is also tax deductible.

7 BE CAREFUL WHO YOU TELL

People do funny things when money is involved.

Even seemingly close friends and family members can have their judgment clouded, while some people are just greedy.

This can be compounded if you share your money with anyone. For example a gift to a struggling sibling may be misconstrued as a free-for-all by the extended family.

While it’s your decision, think twice before posting a Facebook update about your good fortune, and make sure you trust the people you tell.