It's common to pop into a grocery store to make a quick purchase or return an item you no longer need. It’s less common for an errand like that to change your life. But it can happen.
In 2018, New Jersey resident Tayeb Souami told reporters at a press conference about how it happened to him.
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About a month earlier, his wife had asked him to return a $5 carton of orange juice that was beyond their household budget. While waiting in line, Souami saw that the Powerball jackpot had increased and decided to spend his $5 refund on a couple of lottery tickets. In the end, that splurge was possibly the best financial decision of his life, since it resulted in a $315 million payday.
Of course, Souami didn't get to keep his prize in his entirety. Rather than receive his winnings over time as installment payments, Souami opted for a lump sum payment. After taxes, his $315 million was whittled down to about $211 million. But that's hardly a payday to cry about.
That said, coming into a large sum of money unexpectedly could pose some challenges. So if you ever end up in that fortunate situation, it’s important to know how to handle it. Here’s how to manage a windfall.
1. Create a spending plan
When you’re on the receiving end of a windfall, it’s natural to adopt some lifestyle changes. But it’s also important to create a spending plan and budget so you’re managing your newfound wealth accordingly.
Map out your expenses the same way you would on an average income. Allocate funds to the things that are most important to you, whether it’s hobbies, travel or charities. And be mindful of the cost of acquiring expensive assets like homes and vehicles, factoring in things like ongoing maintenance.
2. Set yourself up with investments
Coming into a large sum of money puts you at an advantage from an investing perspective. On one hand, you don't have to take on much risk because if you’re putting a huge pile of cash into a relatively conservative portfolio, you can still enjoy sizable returns.
At the same time, because you have so much money to work with, you can afford to play around with more speculative investments and see if there's any financial upside. And you can afford to look at assets that are less liquid, like art and real estate.