If your numbers come up - fingers crossed - the first thing you should do is...nothing.
If your numbers come up - fingers crossed - the first thing you should do is...nothing.
An unexpected windfall can transform your life providing you invest the money well. Lissa Christopher gets expert advice on what you should do with it.
If a significant financial windfall ever comes your way - perhaps through an inheritance, a work-related bonus or even a lottery win - the first thing a good adviser should tell you is to do nothing.
Put the money in a high-interest savings account, a term deposit or your mortgage off-set account for a month and just think, says a co-director of WLM Financial Services, Laura Menschik.
''Sit on it, dream about it and focus on what you can do, what you should do and what you want to do,'' she says. ''And possibly seek advice, especially if it's a substantial amount of money.''
A chartered accountant and financial planner with Quantum Financial Services, Tim Mackay, agrees it's important to cool off and manage your emotions in the face of a windfall.
Research has shown, he says, that a change in wealth is stressful and while people tend to protect money they've earned, they can be spendthrift with money for nothing - particularly with an inheritance.
''Don't let anyone rush you into making decisions,'' he says. ''Take your time and allow any urges to splurge on a bigger car or house to pass.''
Money has approached four financial advisers, including Menschik and Mackay, to ask what they'd suggest for people in the 25-to-45 age bracket, the 45-to-65 bracket and those older than 65 in the event of a windfall of between $50,000 and $100,000.
While most have provided advice specific to people's life stages, the director of Brocktons Independent Advisory, Daniel Brammall, stresses there is no one right way for any demographic. ''There's only a right or wrong way for you,'' he says.
''Making smart decisions with your money is done by thinking about your life situation and what you want to achieve in the future. Having a financial road map like this provides a framework to guide your money decisions, lifting you above the noise of the markets and the media.''
Mackay, too, says, ''There is no one-size-fits-all advice [but] your key goal should be to use the money to build yourself a more secure financial future, not to change your material surroundings as quickly as you can.'' While Money expected the advisers to launch quickly into talk about debt-reduction and investment portfolios, one of the first things most mentioned, targeted to all age groups, was the importance of spending the money - just not all of it.
''Take less than 5 per cent and treat yourself and your family,'' Mackay says.
''Reward yourself but be sensible with it because [money like that] may never come again,'' Menschik says. She suggests being as frugal as going out for a splash-up dinner with the interest you earn on the principal during your month of cogitation.
The manager of advice development at ipac, John Dani, says it's all about balancing buying items, buying experiences and putting the money towards improving your future.
''Buying experiences is probably better than buying things,'' he says. ''You can create enduring memories and bring families closer together. It doesn't have to be extravagant.
''There's nothing wrong with improving your lifestyle now by buying things or experiences but people fall short with also applying a windfall towards their future.''
Keeping in mind that what you should do largely depends on your personal circumstances, here are some guidelines and ideas for each age group.
AGE 25 TO 45
Most people in this age bracket are likely to have some level of non-deductible debt, Menschik says, and paying it down with a financial windfall, starting with the one attracting the highest interest rate - probably the credit card - should be considered first.
Next, the mortgage. ''Paying down the mortgage generally makes more sense than investing,'' Mackay says. ''If you have a 7.8 per cent mortgage rate and earn $40,000 to $80,000 in income, then you would need to earn more than 11.4 per cent on investments, before tax, for investing to make more sense than mortgage reduction,'' he says.
''And you would need to earn 12.7 per cent if you earn $80,000 to $180,000. One of the best moves you can make is to own your home outright as soon as possible.''
If you are in good financial shape, you could also consider starting an investment portfolio (be sure to invest in the name of the spouse who pays the least tax). You could also undertake further education, put the money aside for your children's education or donate to a charity.
But don't stop reading yet - some of the advice for the older folk may also apply to you.
AGE 45 TO 65
Superannuation may be the best place for a windfall in this bracket.
''If you're approaching retirement, you might want to look at topping up your super by making a non-concessional contribution [which means] you don't get a tax deduction but it's not taxed when it goes into the fund,'' Menschik says.
''If you're self-employed, you could use it towards your concessional super contributions.'' A ''dent in the mortgage'' is still a good idea at this time and so is starting up a wealth-accumulation portfolio, she says.
Dani says those at the younger end of the spectrum face what's called greater ''legislative risk'' with super.
Money in super is, essentially, inaccessible until you reach preservation age and changes to super legislation may occur in the years to come, including the preservation age being raised.
While you should not ignore super - Dani says ''it remains the most tax-effective form of retirement savings'' - if you're in your early to mid 40s, ''you may want to invest some of the windfall for the longer term in a non-super environment … for the peace of mind and accessibility.''
AGE 65+
People in this age group are often looking for ways to generate sufficient income to maintain their lifestyle, Dani says. They also need to know how any increase in income would affect any Centrelink benefits they're receiving.
''They may wish to consider adding money to super to create an allocated pension, term deposits or the use of specific investment products designed to generate reliable income,'' Dani says.
In this age bracket, it may pay to be conservative with your choices.
If you seek advice on investment options and products, Brammall recommends finding an independent, flat-fee-for-service financial adviser.
''If you see a non-independent adviser, what you're really getting is a sales pitch masquerading as advice,'' he says. He also recommends being wary of complexity and being beholden to an adviser. ''Don't become a slave to your finances,'' he says. This applies to all age groups.
Menschik says she has seen people in this group, mostly women, who receive a lump sum when their spouse dies and hand it out to their adult children. ''Don't give it away because you are going to need it later on,'' she warns.
Inheritance makes the impossible possible
Six years ago, when Anna Beardmore's much-loved grandfather died, he left her $65,000. She was driving a small, old car at the time and decided to buy a new, bigger one with some of the money.
''I'd always wanted one of these [Subaru] Foresters,'' says the 44-year-old mother of two. ''I used to go away a lot, camping and things like that, and it was just a lot more practical. I knew I'd use it a lot.''
Beardmore (pictured) paid $20,000 towards the car, put the rest in a high-interest savings account and took out a personal loan to pay off the remainder owing on the car.
''I just couldn't bear spending it all at once on the car,'' she says.
Beardmore has since used bits of the remaining principal to pay for ''many things'', including two periods of unpaid maternity leave, some of the peripheral costs of setting up a mortgage and buying a house and a trip overseas.
She still drives her ''sensible, practical'' Subaru but now it's more of a family wagon than a camping vehicle.
And she still has some of her inheritance left. Two-thirds sits against the redraw facility on her mortgage and the rest remains in that high-interest savings account.
''Every time I need to use [the money], I thank my grandfather, wherever he is, because there is so much I've been able to do that I couldn't have done without it,'' Beardmore says.
10 golden rules for prosperity
  • Do nothing. Park your money, calm down, think
  • Remember, there's not one right thing to do. It's about your circumstances and values.
  • Reward yourself with a sensible portion of the money. Anything from a splash-out dinner to an overseas trip.
  • Pay off debts. Reduce non-deductible borrowings, such as credit cards, personal loans and home loans.
  • Consider superannuation. Would you benefit from topping up your retirement nest egg?
  • Consider an investment portfolio. However, seek out sound, impartial advice if you decide to take this path.
  • Mind the consequences. Remember, a windfall may affect Centrelink benefits.
  • Consider charity. It's good to give back and it feels good.
  • Think about education. Further education could provide worthwhile emotional and financial returns. Or put the money away for your children's education.
  • Seek advice. Sound, independent financial advice is what you want. Don't be seduced by complicated or trendy products. Establish a financial map that's right for you and your goals.