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What should I do if I receive a large sum of money?
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Aside from picking up the check when you're out with friends, there are some bigger issues you'll have to deal with after coming into sudden wealth, whether it's a payout from an inheritance, the lottery, stock options, or a favorable verdict in a lawsuit.
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First, try to keep your bearings about you. Don't quit your job right away, and avoid blowing lots of money on a frivolous item. Watch out for unscrupulous financial operators who make offers that seem too good to be true or friends and family who appear out of the blue with loan requests and business proposals. And don't feel that you have to invest your money right away. There's nothing wrong with letting it sit in the bank while you carefully consider your options.
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No matter how you've come into your windfall, there will be tax consequences. A competent accountant or tax lawyer will be needed to make sure you follow the right steps. You may need to adjust how much you have withheld from your paycheck for taxes or pay quarterly estimated taxes.
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Before looking ahead to long-term investing, make sure you've taken care of immediate needs. Establish an emergency fund (make it six months' worth of expenses), and if you've been carrying consumer debt like car loans or big credit-card balances, now's a great time to pay it all off. You may have lawyers' fees to take care of, as well.
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Finally, consider how your windfall can serve you for long-term goals such as paying for children's education and your retirement. The questions are many: Will you invest your money in a lump sum or dollar-cost average it? Will your expenses be rising greatly owing to a fancier lifestyle? Should you invest in growth stocks to maximize returns or in municipal bonds to minimize taxes? You may want to consult with a financial planner, who can help you figure out all the complicated variables and options.
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