Suppose you are reading this, having recently received a windfall, congratulations! Not many of us have the chance to unexpectedly have a large amount of money fall into our lap. That said, whether it’s an annual bonus, lottery win, or an inheritance, hold your horses! Understandably, it can be extremely tempting to spend it immediately, but just hear us out before you go and blow it all…
Particularly debt with high-interest rates (e.g. credit cards). Clearing off debt improves your net worth, making long-term financial goals more achievable, plus it removes monthly debt repayments, therefore freeing up money for the things you love. It can also help improve your credit score.
After paying off any immediate outstanding debt, give yourself some time to decide what it really is you want to do with the windfall. With that said, don’t leave it too long, as spare cash tends to spend itself! Allocate it immediately after deciding what it is you would like to spend the windfall on. Find the correct balance between the amount you want to spend in the present and the future.
If you are working towards an emergency fund, use this as an opportunity to complete it. If you already have a complete emergency fund, then you can use this as an opportunity to put money towards your short-, medium- and long-term financial goals. A considerable amount could go towards your long-term investment plans. Whatever you decide, start by creating a list and prioritising your financial goals. We recommend establishing separate savings and investment accounts for your financial goals.
You should assess your insurance gaps for all areas of insurance: life insurance, health insurance and other general insurance. If done correctly, this could result in your never having to bother with comparing policy premiums or endowment plans ever again!
Occasionally, you can benefit from a higher tier of interest with higher sums deposited. Alternatively, consider a new credit card if your windfall has dramatically changed your financial situation.
For those wishing to achieve their travel goals following a windfall, consider the DBS Altitude Visa, KrisFlyer UOB, American Express Singapore Airlines Krisflyer, Citi PremierMiles Visa and UOB Prvi Miles American Express credit cards.
Give thought to seeking the services of a professional advisor, especially if the windfall is large. Those with large enough sums may even be offered a relationship manager by the bank to help plan investments. Investments should be suited to the time frame of your goal.
Do not invest if you cannot afford to take the losses in worst-case scenarios. For professional and non-professional investors alike, consider diversifying your investments to minimise the risk of financial loss without derailing your potential long-term returns. It is essential to control rather than avoid risk as investing is a long-term game, so avoid letting short-term volatility or swings disrupt your goals.
A popular method for increasing your risk/reward profile, given your newly enhanced level of wealth and financial resilience (and likely risk tolerance), is to boost your ratio of shares to bonds/deposits.
This may not be your first thought, but it is a worthwhile investment. Education is an asset that cannot be sold or stolen and lessens the obstacles that life will present you with. It expands your opportunities, allowing for expanded growth potential and unimaginable returns. Consider investing in education through courses and books.
In short, a great thing to do! There’s nothing wrong with feeling a moral duty to use financial resources available to you to help others, making yourself and others happier in the process.
But aside from moral incentives, there are also income tax advantages! For every dollar donated to eligible charities, Singaporeans will have $2.50 wiped off their taxable income.
Learn more about the initiative here.
While some winnings from betting or lottery may not be taxable (depending on where you live), some forms of financial windfalls are. To be certain, check with a trusted financial advisor before you make any plans.
Don't go crazy with something super expensive, but there's nothing wrong with a little treat for yourself as a reward for acting on points 1-9 above!
WINDFALLS. COMPLETED. ✅
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