Your guide for managing a financial windfall

Getting a financial windfall can come from various sources such as an inheritance or winning a lottery. A financial windfall might change your life and present you with a lot of financial opportunities, however, if you don’t utilise it wisely it may create unpleasant moments. Therefore, it is important to have a plan in place that will help you manage your money well to avoid making bad financial decisions.

Ilse Smuts, Business Development Head at FNB Retail Cash Investments says, “it is important to understand that managing large amounts of money is not easy, while the first instinct for most people would be to reward themselves with a car, a big house, holiday, or shopping, it is important to first define your short and long-term goals to ensure that you use your financial windfall to achieve financial freedom.”

Yashika Rambujan, FNB Private Banking Regional Head KZN says, “we often underestimate the responsibility that comes with inheriting a large sum of money. Preparation is crucial. Customers and their families are advised to identify heirs for their inheritance well in advance. Unfortunately, at times, circumstances do not allow due to heirs being too young or simply get overwhelmed by the responsibilities falling upon them when reality sets in.”

“A financial windfall can come with difficulties and risks in addition to being a life-changing moment. Your happiness and future financial situation might be greatly impacted by how you handle your money,” adds Smuts as she shares a guide on how to manage a financial windfall:

• Define your goals: The first step you need to take when managing a financial goal is to be clear about your goals and how you are going to achieve them. Therefore, you need to have a clear vision of what you want to achieve and set timelines. Having a clear goal will help ensure that you take the right direction and guide in making the right financial choices that aligns with your financial goals.
• Reduce your debt: Paying off debt that is costing you more than you are making on your savings and investments is one of the wise financial decisions to take when you have received a financial windfall. Reducing debt will help you save money on interest and free up cash flow for other key financial priorities such as saving for emergencies, contributing more towards your retirement, and saving for your short and long-term goals.
• Save for emergencies: It is important to save for rainy days to avoid tapping into debt to deal with a financial emergency. Therefore, it is advisable to understand the type of savings products that caters for emergencies and the returns each product offer as different savings vehicles offer different interests. For example, FNB offers a Savings Account with interest up to 7.80% p.a. and a Money Maximiser with interest up to 8.25% p.a., both give you instant access to your money in case of an emergency.
• Save for retirement: While retirement may seem far, the sooner you start your retirement journey is the more time you have to grow your money and benefit from compound interest. Therefore, it is advisable to use some of your financial windfall to save and invest for your retirement so that you can realize maximum possible gains overtime.
• Seek professional help: managing a financial windfall may be a very overwhelming experience as you may not be familiar financial planning or the right savings and investment products that will give you better returns based on your needs. For this reason, it is important to seek professional help from a private advisor to guide you in terms of the right savings and investment vehicles that will cater for your needs.

Rambujan adds, “as a responsible integrated financial services provider, we encourage customers and their families to get sound financial advice from their private advisors to help them manage, save and invest their wealth. In addition to the support and guidance from our Private advisor network, we’ve also significantly invested in digital solutions such as nav»Money to help them with budgeting, saving, managing credit and spending.”

“Establishing a savings goal is the most important consideration when managing a windfall. Being honest with yourself and assess how your financial position was prior to the windfall need to be carefully considered, together with your level of financial literacy to establish the need for integrated advice,” concludes Smuts.