So you’re way more wealthy today than you were yesterday. Good for you. Now what?
Losing Your Job
If you’ve just been downsized, out placed, or just plain fired, you may receive some sort of a severance package, also called a retiring allowance. Some people use those funds to start their own business, but if that idea doesn’t appeal to you and you can get another job fairly quickly, you’ve got a windfall.
Go back to square one of budgeting and use your windfall wisely. You may want to take a vacation or pay down your debt but remember, a retiring allowance, like ordinary employment income, is included in your income. If you get another job quickly you could find yourself with a big ugly tax bill.
If you don’t need to use the funds, you can transfer your retiring allowance tax free to an RRSP. There are some rules as to how much you can contribute this way so discuss it with your financial advisor.
If you don’t get another job right away then you don’t have a windfall. It’s future income that you’ll need if the rejection letters keep coming in. You could park your money in a high interest savings account where it will have some growth potential and you can still get your hands on it quickly if you need it. When you do finally get that job, you may consider more aggressive investments if there’s money left over.
Your Numbers Came Up
If you’re one of the lucky few who hit the big lottery jackpot, take a deep breath and do some serious planning. Contact a financial planner, an accountant and a lawyer to help you to invest wisely. You can afford it.
It’s hard to believe, but reports tell us that many lottery winners go on a spending binge after they win and find themselves, just a few years later, without a cent of their winnings left.
Your lottery winnings in Canada are not taxable (but the income you earn on them is subject to tax). Go directly to a financial planner and learn how to manage this great opportunity.
Your Rich Uncle Died
An inheritance can be income you knew about and planned on or, in the case of a rich uncle you never met, a windfall. We do not have an inheritance tax in Canada so your lump sum inheritance is cash in the bank.
Windfalls are exciting and offer many possibilities. The money can be a great boost to your retirement savings. It can also be a huge tax problem if you don’t think carefully about your new found money and where you’re going to put it.
Rewrite your budget and your net worth statement. Then check with your financial planner and do something clever with your new found wealth to make it last.