Friday, April 29, 2011
When an individual receives a large financial gift, his or her choice on how to spend the money largely depends on his or her personal and financial circumstances. It is important, however, that the recipient is able to articulate the reasons for his or her financial decisions. Though spending a windfall on frivolous things is understandable and expected, financial advisers suggest a few guidelines to help recipients handle gifts in a prudent and responsible manner:
- Make a financial plan before spending any money.
- Pay off credit cards and other debt with high interest rates.
- Increase contributions to tax favored pension plans.
- Max out on retirement plans.
- Buy more health, life, and liability insurance.
- Put money away for long term plans (such as a child’s education).
- Last but not least, have some fun with the gift.
See Conrad de Aenlle, When a Windfall of Money Arrives, So Can Challenges, N.Y. Times, Nov. 23, 2010.
Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.