Receiving a settlement is always nice, particularly if you’ve been drowning under medical expenses and other bills. While you may want to spend the money right away for immediate gratification, it’s dangerous to burn through the cash too fast. To make sure the money lasts, avoid these common tendencies when you receive a settlement.
Financial advisors generally suggest waiting six months to a year before spending a large financial settlement. It takes time to plan the best use of a significant sum of money. If you received a lump sum settlement, you may have more money than you’ve ever seen in your account before.
Step back and carefully consider your options, as well as the consequences of each choice. An investment will grow your money, but you’ll have to pay taxes on the interest. If you’re undergoing long-term medical treatment for an injury, you may not have a clear picture of your medical expenses or ongoing pain management needs yet. Don’t rush to spend your settlement.
Indulging in Dream Purchases
With your bank account suddenly swollen, you’re probably thinking about that yacht you’ve always wanted or the dream house on the hill. While there are many smart purchases that are a worthy investment vehicle for your funds, flashy dream-buys are usually an extravagance. Buying a home can give you stability and a good real estate investment, but you shouldn’t purchase a mansion that’s beyond your ordinary means.
Remember that large purchases typically come with their own ongoing expenses, such as insurance and upkeep for a boat or household maintenance and property taxes for a home. The wrong purchase could leave you with staggering debts in the future.
Guessing at Investments
Investments are a smart option for your settlement funds, but you shouldn’t throw your money into the first stocks and bonds that you find. You should diversify your investments for better risk management. Money market funds are a convenient short-term option for cash you may need access to, while stocks and bonds are better for long-term use. If you’re not accustomed to managing large sums of money, you may want to choose a financial planner or advisor to help.
Focusing on the Now
Most settlements are intended to last for several years. You may have ongoing medical expenses and time off work to account for. Perhaps you’re facing years of therapy or rehabilitation. Don’t get so caught up in your immediate wants and needs that you forget about the things you’ll need a month, a year, or even a decade from now. Look at your settlement as a long-term source of money, not something you should spend immediately.
There are several different ways to structure your settlement. If you’re concerned about how to handle a lump sum, your attorney may be able to help you with a structured settlement that will make it easier to manage your money. Call David W. Singer & Associates, P.A. at 1-800-ASK-FREE (800-275-3733) for information on how to make the most of your settlement and how not to spend it.