You've unexpectedly struck it rich and now financial decisions you've never been faced with are beginning to surface. Before acquisitiveness strikes, make a plan. What can you do with a sudden influx of money to ensure it doesn't vanish right before your eyes.
"The first lottery winner we ever worked with had won $4 million. Within five years, all that money was gone," says Brian Mackey, chief executive officer of New York-based 4Thought Financial Group. "If you don't plan, that money can disappear in a hurry."
If you've suddenly come into money - whether your unexpected influx of cash is $10,000, $100,000 or more - here's what the financial pros recommend you do to protect your new wealth.
$10,000 to $30,000
Receiving a check for $10,000 to $30,000 can be a dangerous amount. It's just the range you need to buy a big ticket toy like a car, boat or RV -- but then you've depleted your fortune.
Bruce Vandegrift, a wealth adviser at Rockford Bank and Trust Company, recommends a more frugal approach. He says that the first step any consumer should take when coming into an unexpected sum of money is to pay down high interest rate debt.
"If you are in debt, the interest accrues day and night," Vandegrift says. "Use your bonanza to pay down or pay off the highest interest rate balance you owe. That is likely to be a credit card. Don't use the card again unless you can pay off the purchase. Then use the increase in cash flow to pay down the next most expensive debt. That's how you get out of financial bondage."
This means that if you inherit $10,000 and it takes that amount to pay off or put a dent in credit card debt, you should forgo your dreams of taking a luxury cruise or buying a jet ski. Paying off the debt should always come before more frivolous purchases.
$30,000 to $80,000
If you come into a larger sum of money - say as much as $30,000 to $80,000 - you can take a multistep investment approach. After paying off your debt, set aside some money to create an emergency fund if you don't already have one. Financial experts recommend that you have enough money in this fund to live for six months to one year without your regular sources of income.
Once you do this, it's time to make a safe investment, says Paul Jacobs, certified financial planner and chief investment officer with Palisades Hudson Financial Group's Atlanta office.
Jacobs recommends investing money in a low-cost, low-risk diversified portfolio.
"Some people think that investing and gambling are the same thing. But they're not," Jacobs says. "By diversifying, rebalancing and monitoring costs, investing will lead to a much better outcome than gambling."
$80,000 to $300,000
If you inherit $80,000 or more it's easy to think that you have dollars to spare. But financial planner David Keefe, owner of 4-Point Financial, says that you need to truly understand how quickly even big sums of money can evaporate.
Say you spend $20,000 on a sports car that you normally would never have bought. If you had instead invested that same $20,000, the odds are that you might have $80,000 or more in 20 years, factoring in a modest rate of return. But the $20,000 you spent on a car, now it's gone.
Keefe calls this opportunity costs: "Every time you make a money decision, you should explore what that decision is costing you," he says.
If you come across a larger sum of money -- $100,000 or more -- Keefe says that it may make sense to spend at least a bit of it on something fun.
"You know you want to, anyway," Keefe says.
But Keefe recommends that you spend it on something small, such as a family vacation. Then, you'll still have plenty of money left over to pay down debts, start an emergency fund and invest. If you inherit enough money, you can place some in a 529 college savings fund, even if your children haven't even started elementary school.
It also makes sense to start thinking about retirement.
Keefe recently worked with a married couple in their 30s who inherited $250,000. Neither the husband nor wife earned much money, and neither had a retirement account before their inheritance.
The couple has since invested $44,000 in IRAs, and are now on pace for a happier retirement, Keefe said.
"That was the right choice for that couple," Keefe says. "Everyone is different. What you do with the money depends on your financial situation."
$300,000 or more
It's true that inheriting or winning a large sum of money can be a life-altering financial event. But just because the sum of money is extremely large, doesn't mean that you are void of problems. You still need to plan what to do with that money.
A less obvious obstacle to consider is something Mackey calls outside invaders, those forces who want to swallow a good chunk of your financial windfall -- relatives, and old friends coming out of the woodwork, and new taxes you likely haven't faced.
The key is to work with a financial professional who will make sure that while you give your fair share, you don't give it more than that.
Mackey also recommends that if your parents or grandparents want to leave you a large amount of money, they place it in a trust naming you both the trustee and beneficiary of it. That way, you make all the financial decisions of that trust, and you can more easily protect your money from friends and relatives, not to mention from lawsuits or divorce.
"When friends and relatives come to you and start asking for money, you can just say that it's in a trust and there's nothing you can do," Mackey says.