Utilising a financial windfall

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A financial windfall can come from various sources such as an inheritance or winning a lottery, and might change the life of the recipient. However, not using a financial windfall wisely may create other difficulties.

Ilse Smuts, Business Development Head at FNB Retail Cash Investments explained: “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.”

“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 that due to heirs being too young or simply getting overwhelmed by the responsibilities falling upon them when reality sets in,” added FNB Private Banking Regional Head in KZN, Yashika Rambujan.

Smuts shared a guide on how to manage a financial windfall, below are her tips.

Define your goals:

The first step in managing a financial goal is to define it clearly. Begin by envisioning what you want to accomplish and setting specific timelines. A goal will provide direction and help you make financial decisions that align with your objectives.

Reduce your debt:

Using a financial windfall to pay off high-interest debt is a smart decision, especially if the debt costs more than you earn from your savings and investments. Reducing debt will save you money on interest and increase your cash flow, allowing you to focus on other important financial priorities.

Save for emergencies:

Saving for unexpected expenses is crucial to avoid relying on debt during financial emergencies. It is important to understand the different types of savings products available and the returns they offer, as each has varying interest rates.

Save for retirement:

The sooner you start your retirement journey 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 realise the maximum possible gains over time.

Seek professional help:

It is essential to seek professional advice from a private advisor who can guide you in selecting the appropriate savings and investment options tailored to your goals.

Rambujan added: “We encourage customers and their families to get sound financial advice from their private advisors to help them manage, save and invest their wealth.”

“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,” Smuts concluded.

Compiled by Warren Hawkins