What to do if you receive a windfallSuddenly receiving a large amount of unexpected money, also known as getting a windfall, seems like a problem that most people would want to have. However, coming into a lot of cash very fast comes with a lot of pressure, and a windfall can actually create more money problems than it solves. For example, a study of lottery winners found that they’re more likely than the average American to declare bankruptcy within the next three to five years, and in the U.K. there’s a lottery aftercare program for winners to make sure they have access to impartial financial and legal counseling. Using a windfall to benefit your life requires patience, discretion and the right advice, so if you want to avoid the pitfalls of abrupt wealth, keep reading.

Make changes slowly

When you first learn about your windfall, you may get very emotional and start thinking of all the things you want to do with the money. One of the most important things you can do to make sure you don’t squander your good fortune is take some time to come to terms with what’s happening and think things through before you take any action. This is especially true if the windfall is coming from a difficult life event, such as an inheritance from a close family member who has passed away. Unless you’re in a dire financial emergency, wait at least a few months before you use any of your new wealth, and try to keep your life largely the same. This includes staying at your job, even if you no longer need it, as continuing to work can help you retain a sense of normalcy in your life. Plus, if you somehow lose your money and need to rely on Social Security later in life to retire, quitting your job may reduce the benefits you’ll receive.

Part of making changes slowly also includes informing people slowly. When you learn about your windfall, try to keep as few people as possible from knowing, apart from very close and trusted family members such as your spouse. Telling people about the full extent of your monetary gains will probably result in a lot of unsolicited advice on how to spend your money, not all of which will be well-informed or well-intentioned. If word of your money spreads, you may be targeted by scam artists and identity thieves who know you’re worth going after, as well as strangers with sad stories pleading for financial assistance. You can hopefully avoid this by keeping a low profile and educating yourself about security.

Plan a windfall strategy

Ironically, when you have a lot of money, it’s more difficult to tell when you’ve overspent. This is why making a plan is key to managing a windfall responsibly, as it will give you a guideline as to how much you can spend where. Consult with some professionals, such as certified financial planners and lawyers, and then portion out what you want to do with the money based on percentages, such as giving 10% to charity and setting aside 15% to help friends and family. You should also choose the amount of money you can use on fun expenses, as it will give you a guideline as to what level of splurging and luxury you can afford. Keep in mind that you will also likely have to pay taxes on the sum of cash you receive, so you should plan to save about one-third of your windfall to pay the IRS. Otherwise, you may have to face tax penalties.

Ideally, you’ll use the bulk of your money to make yourself more financially secure. Some ways you can do that are to pay off your debt, build an emergency fund and rethink your investment plan. If you don’t have an investment plan, now is a good time to make one. A windfall can help you meet the minimum deposit for a high-interest savings account or an IRA, and a bunch of money just sitting and earning interest can turn a single lump sum into steady supplementary income that lasts for decades. You may even be able to look into early retirement, which can give you more freedom to pursue jobs and lifestyles you want. Thinking of a windfall as a piece of your income rather than just a big pile of money to spend may encourage you to preserve it for as long as you can.

A windfall can be a wonderful event that can change your life for the better, but there’s a lot more to having money than spending money. For more advice on how to handle the ups and downs of your monetary life, follow our personal finance blog.