Got a windfall? Here is how to spend it wisely

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A trader counting money. FILE PHOTO | NMG

In a certain village a story is frequently told about shopkeeper who sold a chunk of land he had inherited from his father and got few millions in his account. The lad become instant celebrity. The village folks could only talk of how many cows, goats, bicycles, houses and other treasured items such colossal sum of money could buy to make others understand the true value of his wealth.

The man immersed himself in spending on personal development, expanding his business and some luxuries to match his new status.

However, this lasted only for few years before he found himself deep in debts and his business sinking. Eventually he lost almost everything he had and now ekes a living by doing menial work in the village.

This is typical example of someone who gets a financial windfall and fails to manage it well.

Windfalls may come in form of winning a big tender, business deal, inheritance, lottery, insurance compensation and so on.

Despite the fact that we all look for wealth, a sudden influx of money will undoubtedly have an impact on our lives. Various studies and experiences from people we know show that majority of people who get unexpected windfalls end up worse off than before in a matter of few years.

Fortunately, it is possible to avoid such scenario by wise planning and preparing in case you are fortunate.

First, if a financial windfall comes along regardless of the size, you should go slow on spending. Such influx of wealth is usually accompanied by intense emotions. This will undoubtedly influence the decision you make. Delaying spending decision and maintaining your lifestyle will help you sober up and make good decision.

Second, seek advice from qualified financial advisors. Do not trust your guts, your relatives and friends who may not had such experience. You need be aware of hurdles such as limited business skills should you consider venturing in business, legal requirements, tax implications and investment options available.

Third, figure out how to manage demands and expectations of people around you. As evidenced in past such cases, relatives and long-lost friends will crop up and start reestablishing ties with you in order to get a piece of your wealth.

Fourth, be clear on how you want to spend your windfall and plan for it. This will help you get the right advice from experts.

Finally, try as much as possible to maintain your current career path and let the windfall help you to advance it rather than divert you from it. If you are employed don’t rush to quit in order to manage new wealth. Use alternative investment and part of it to grow you career by acquiring skills you did not have.

No amount of windfall can buy the freedom to eliminate all your financial problems. Financial freedom comes from investing and spending money wisely in order to live a lifestyle you can manage and sustain.

Mr Kiunga is a business trainer and the author of ‘The Art of Entrepreneurship: Strategies to Succeed in a Competitive Market’