Assuming one has a windfall, it is easy to lose sight that the windfall can be depleted as the years go on. When one has the money in the bank, he could spend his money freely and not to make every cent counts. He could take risk in investments, taking advice from his bank relationship manager to get into riskier investments. Risky investments could result in losses when the global economy had gone into recession like the Global Financial Crisis.
Planning on how to handle the windfall is very important. One must decide for himself (and with his family) how he is to allocate the total dollar amounts into “buckets”. This is really personal and is dependent on the financial circumstances he is in.
One may set aside sums of money into:
- Donations to charity
- Helping relatives in need of help
- House renovations
- Holiday plans for the family
- Children’s education up to the university level
The balance after the above major items is further allocated into:
- Amount set aside as a lumpsum for family monthly expenses over a set number of years
- Amount set aside as a lumpsum for additional monthly income (on top of family monthly expenses) over a set number of years
- Balance left over is then free for investments
This balance free for investments is meant for one to take some risks in investments to grow the pie. You would realise that when one sits down to plan how to deploy the windfall, the balance set aside free for investments may not amount to much.
By doing the above planning, you would then take care of the essential spending first. Money is then set aside for different purposes. It is hoped that one does not jump into investing large sum of money right at the start of the windfall. Investing carries risks. Spending freely without planning is also foolhardy.
Copyright © 2019, limkimtong for Living Investment
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.