Smart ways to manage that windfall

You may receive some money on an unexpected occasion. This sudden volume of cash may leave you overwhelmed about what to do with it. For some, the thought of buying something they have longed to own quickly comes to mind. There is also a tendency of persuasive buying even when you might not need a particular item.

The sudden financial windfall could be from a legal settlement, an inheritance, lottery or even a gift. But how best can you plan for that money?

This extra cash can be an opportunity for you to improve your financial situation. But many people spend the money because they don’t have a specific plan to preserve it.

That in most cases might explain situations where you buy an item but never use it because you didn’t plan for it.

If you find yourself in this situation, there are several steps you can take to make the money last and set yourself up for a potential early retirement while having fun along the way with your newfound wealth.

Windfall

Mr Solomon Muhiirwa, the managing director - WATU Limited and human resource consultant, defines windfalls as sudden or unexpected cash that comes your way.

“The circumstances may differ - either through being paid dividends, winning a lottery or a ‘beyond normal’ business transaction (in terms of volumes and cash),” Mr Muhiirwa says.

Sometimes, people are paid large sums from a client with a long outstanding debt and they call it a windfall, but this is debatable.

Different people handle windfalls differently. This depends on the amount that has come their way.

He notes that the figure determines whether to invest it (generate income) or inject it in an-already running venture.

“Anything outside this, you will find yourself either paying debts, entertaining yourself or you will instantly find relatives plus friends bombarding you with all sorts of problems that need money,” Mr Muhiirwa says, adding that they always have a way of detecting when you have money.

Citing one of the advantages of windfalls as; it shows you life’s possibilities and its unpredictable nature.

He, however, says a windfalls usually finds you unprepared and there is always a high propensity to use the money unwisely.

Mr John Allan Namu, an investigative journalist, Africa Uncensored, says if there is nothing any one has learnt from Covid-19, then he or she will never learn.

“Everything for me is to learn from it and try to reserve some of the money which we might have earned unexpectedly for a rainy day to invest it in something we can earn more revenue from,” Mr Namu says. 

He adds that you do not have to forget yourself because sometimes these windfalls are also sent to you so that you can give yourself a small treat. But the wider goal is to build long term wealth and try to be smart about how you invest.

“I do not think windfalls should be used just like that especially for furlough things. It is important to remember yourself and treat yourself not to be so frugal as to suffer even when you have the resources to treat yourself better,” Mr Namu adds. 

For instance, go out and do something modest for yourself and a little better than you usually do such as getting a better haircut or manicure or buy the children something small. But remember that this money can also help you retain your wealth such that you use it more.

He does not think that windfalls should be used in quite a way that is being seen in music videos. For some people the fact that it was least expected it might be valued less. However, it should be valued more. 

Mr Namu adds: “The biggest mistake people make is blowing it all up in one place thinking there can be another one tomorrow. But try and be yourself.”

Spur excitement

Mr Andrew Kyambadde, a tax lawyer, says there is a problem of excitement in most cases for instance a bullion has come in at the end of the day and you are not going to live for today but you are living for the future.

“Windfalls spur excitement but ideally, you must budget for the windfall, live within the budget and plan for the long term. Get the difference between revenue expenditures and capital expenditures,” Mr Kyamabdde says.

Know the things which should be day today and let them help you and live a portion to help you manage the capital costs in addition to having a portion to save.

Most importantly, you need to plan. Do not get excited, look at the expenditure both revenue and capital and look at the savings; then you will be able to manage that windfall.