How to Manage Windfall gains
The Narula brothers, Achin and Sarthak, became the
first ever contestants to win the highest prize of Rs 7 crore in reality game
show 'Kaun Banega Crorepati', hosted by Bollywood megastar Amitabh Bachchan.
Achin is a marketing manager and Sarthak is a student. For Archin and Sarthak
this Midas’ touch comes at a crucial time, turning their lives around.
Now imagine something like that happening to you. It
can happen to anyone anywhere when luck strikes, be it a Masters student or an
old lady at a tea shop. You will be wrapped up in the moment and feel like you
have conquered it all and have finally got what you always needed to reach your
ideal self. Now would be the right time to take a step back and analyse.
Winning a huge pile of cash has a psychological effect on us that we need to recognise
to avoid losing it all at the blink of an eye. Before you decide to give up on
the old thrift shop nearby and head to the high-end showrooms with bright
lights and exorbitantly expensive products, you might want to know a bit more
on how to manage your windfall and possibly to make it grow further if you make
the right decisions.
1. Soak
up the moment
When your bank balance swells
unexpectedly, there is an initial tendency to go berserk.
The worst thing anyone who's just
won a bucket-load of money can do is make knee-jerk decisions that under normal
circumstances would have taken them months to mull over. A windfall could
trigger rash spending decisions. So, settle down, wait for the trumpets blowing
in your mind to die down and keep away from the money for a while. Lock your
money in some short-term debt instruments until rational thinking sets in.
2. Prioritize
spending
This will take the strength of
Hercules but you will be better off if you follow this advice. Take a closer
look at your windfall, it may not be as large as it may have appeared at the
onset. For instance, if you inherit Rs 4 lakh, you need to compare it with your
monthly income. Suppose you earn Rs 30,000 a month, your inheritance amounts to
a little more than 13 months' income. Earlier, you might have thought of a
week-long vacation to Las Vegas or a high-end car. That’s when you will have to
restrain yourself. Don’t try to fulfil your entire wish list at one go. The money
will be gone before you can say ‘Ferrari’. Spend judiciously by acquiring assets
and letting your money grow by investing in long term investment plans. Working
out your post-tax gains is also a good idea. This gives you a rough estimate of
the actual amount of money at your disposal. It's then that you can begin to
think in terms of what you want to do with your windfall.
3. Close
debts
Repay loans and have a sound sleep.
When money rains make good use of it. Try to immediately close debts, such as
outstanding credit card payments and high-interest personal loans, and start
life with a clean slate. If the EMI of your housing loan is too high and may go
northwards, then it’s better to close that loan account. The message is simple:
No debt and No worries. With debts out of the way, you can focus on investing
your money in the right direction as per your dreams and goals. These two
should obviously run parallel to each other. Repaying the creditors should be a
priority for personal as well as for ethical reasons.
4. Investment
in long term goals
Goals and investments should go
hand in hand. Invest with care to reap fruits later. For parents, investing in
a PPF is a good option. So save the windfall gain to make your future or your
child’s future secure. Educating your children or spending on their wedding are
some of the long-term goals that should get priority while taking an investment
decision. Moreover, the need to create an emergency fund cannot be stressed
upon enough. If a person wins the lottery at a young age, they don’t need a
huge emergency fund, but an older person has greater risk and should
judiciously prepare for emergencies. A young man may need an emergency fund to
the tune of 5% of the gains but for an aged person, that portion can climb up to
25%.
5. Evaluate
your career options
Often, on receiving a windfall,
many people feel the urge to embark on a new career path. Having access to all
that new cash accentuates a persons’ craving for a new life with an exciting
career. You need to tread with caution here: carefully evaluate your career
options and see if the money you've got is enough to see you through. Consider
all your options and everything that can go wrong there. It is possible that your
windfall may, at best, be enough to help you retire a few years earlier than
you expect. It might be a good idea to lock the money in a mutual fund plan if
one is willing to take that kind of risk. One good option would be to start
small at your new venture, use the money for market research, make few
technical changes at the existing one which will increase the efficiency of the
project and will be beneficial in the long term. Having a far-reaching vision
of how you want to make use of the cash will give you an edge over your
competitors in the market. Another thing, ask yourself if you have the skills
to succeed in a new vocation. If you don't, acquire these skills before you
even think of switching careers. Education is an endless process and learning something
new will help you in your career and also embellish your personality with
knowledge.
There are other more obvious
cautions to be taken when you stumble across large sums of money. For instance,
tell as less people as you can. Chances are that your acquaintances may not
have the right thought process when it comes to judicial spending of extra
cash. Ask yourself, who has benefitted from all money and no brains?
Interesting Article. Hoping that you will continue posting an article having a useful information. Implementation plan for organization
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