How to go about managing windfall income?

All of us desire to be blessed by a windfall income someday, so that we can go on a shopping spree and / or our favourite holiday destinations. Astute use of such an income can help you to become even richer. Windfall income could arise out of surprise winnings, lawsuit judgments, large inheritances, divorce settlements, insurance settlements, or retirement packages amongst a host of other reasons; but if you don't deploy this pleasant surprise judiciously, it might get extinguished before you even realize it.

Presenting a few guidelines to appropriately manage windfall income earned through your hard work or by mere luck:

• Boost Emergency Funds: In this world nothing is permanent or guaranteed. It is important to have a contingency fund created. And so, in case if you haven’t created a contingency fund, which takes care of at least 6 months – 12 months of your monthly expenses by having deployed money in a separate saving bank account or liquid fund, you must do so first with the help of windfall gains. This will protect you in case of any unforeseen contingencies that might weaken you financially (such as loss of job, decline in the monthly income and so on). Therefore the new-found wealth will play a crucial role to help you in unexpected emergencies.
• Meeting Your Insurance Needs: In the recent times, we are more vulnerable to physical and mental disorders as compared to our previous generations. For these reasons, it is very important to have an adequate health and life insurance. If you are not adequately covered, then use the windfall income to buy/increase your insurance cover. But again here while indemnifying the risk to your life and health be careful about the policy you buy and ensure that you insure yourself with an optimal risk cover. Also, in case you plan to use your newfound fortune for purchasing expensive jewellery, artefacts, property etc. you will also need to buy specific general insurance policy(s) covering such assets, which could indemnify risk from fire, flood, theft etc.
• Reduce (or Remove) Debt: In case if you have any debt lingering around, the windfall income should be used to pay off your debt and financial obligations (such as credit card loan, personal loan, home, business loans etc.), especially the ones that bear very high interest rates. Removing or reducing the extent of your liabilities must be among your top priorities when you plan to utilize the windfall gains. This would help you to boost your financial health and meet other financial goals.
• Prioritize Goals and Boost Them: All of us have certain life goals. For Instance, to have a comfortable retirement, to educate children in the best school and college, to purchase a dream home, a car, and so on. In most cases since it is challenging to meet all these goals with windfall gains. Contributions for meeting these goals can be made or enhanced at this time.
• Investing: As said earlier, make your money work for you and tread on the path of wealth creation. But while you do so, be careful of where you are investing and contact a professional for a good investment advice. They undertake solid fundamental research and invest in asset classes and investment instruments therein following the appropriate asset allocation meant for you. Although your risk appetite might increase with a windfall income, you must observe caution while determining your asset allocation. If your present investments are not generating enough returns to beat the inflation, you can consider investing your new-found wealth in assets that will enhance your returns relatively and mitigate the investment risks through diversification. You should also consider the tax angle while investing.
• Spending Money: Yes we recognise that you might also have a few personal wishes, which you dream to fulfill apart from family responsibilities. You deserve to spend a small portion of the windfall income as you wish so as to enhance the quality of life. You may also choose to donate some part of the funds for a worthy cause.

It would be more prudent to seek help from certified professionals who can advise you regarding suitable investment opportunities which suit your risk profile and which can contribute in meeting your financial goals as well. This will enable you to make the most of your windfall in a tax efficient manner. This gush of money should be spent and managed wisely as you want to remember this once in a life time opportunity as a sweet and wise experience.