Is A Cash Windfall In Your Future?

April 28, 2016
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Never is financial advice more urgently needed than you come into a large amount of cash.

It may look like, “sudden money,” but cash windfalls are often easy to spot and sometimes years ahead of time, if you know where and how to look. Complacence is no longer an option when you look at a check with several commas and realize that depositing it into an existing checking or savings account must be a temporary measure only. The opportunity cost on such a large amount of money earning zero or low interest could amount to hundreds of dollars per day, leading to the urgent question, “What shall I do with this?”

First up are the tax ramifications of the liquidity event itself. If the cash came from the sale of a major asset, for example, how much should be held out for taxes? And where can that money go now to earn a little interest before it must be withdrawn to pay Uncle Sam? Besides that, is there anything that can be done to reduce the tax bite? It may be too late to change the terms of this sale, but working with a tax professional may be able to suggest other strategies and transactions that can reduce the overall liability.

Most important are the investment considerations for the funds that remain after paying taxes and other obligations. In some cases, such as divorce or inheritance, the receipt of a large amount of cash represents the opportunity of a lifetime. It could be your chance to establish a firm financial footing and develop a long-term plan for financial security.

Anticipate the future

To help you avoid a panicked feeling when facing a sudden cash windfall, do something proactive. Don’t wait for possible liquidity events. Begin preparing early, if possible, so that if and when the money arrives, it will be a simple matter of executing the plan you have already formulated. To get in front of any future cash windfalls, review your financial situation and the pending disposition of your various assets. The following possible events may come up, CDs or bonds maturing, sale of business, commercial property sale, other property sale, stock options, severance package, divorce settlement, legal settlement, trust distributions and rollovers.

As you run down the list, consider whether this event or something similar is a possibility, when it would likely happen, the dollar amount of the cash becoming available, and any potential uses for the funds. Potential uses may include:

  • Spending decisions – college, vacation, home remodel
  • Investment decisions – buy another piece of property, business
  • Philanthropic decisions – community foundation, gifts, trusts
  • Uncertainty – you have no idea what to do with this money

Of course, as the liquidity event nears, it is always prudent to identify in advance any “sudden money” possibilities and establish a plan for successfully achieving your long-term objectives.

At HFG Wealth Management, we embrace a holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

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Copyright © 2018. HFG Wealth Management, LLC. Investment advisory services offered through HFG Wealth Management, LLC – An independent Registered Investment Advisory firm registered with the SEC. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Therefore, any information presented here should only be relied upon when coordinated with individual professional advice. [ more disclosures ]