Going through a lawsuit is never fun. Most people do it only when there’s a good chance of a hefty payout. Settlement money will be a huge help for your medical bills and altered lifestyle.
Though the money you receive might be a large sum, it will disappear faster than you think. It’s easy to squander a sudden windfall if you aren’t careful. In order to make it last, you have to allocate your earnings properly to maximize that money.
- Factor in Taxes
If you’ve received a settlement for a car accident or other personal injury claim, the majority of it will not be taxable. The government treats your pain and physical suffering as something it shouldn’t capitalize on.
However, there may be portions of your settlement that require taxation. For starters, anything that reimburses you for bills already paid to a medical institution is taxable because it’s seen as a form of income. The feds may also tax reimbursement for lost wages and other applicable reimbursements.
Speak with a financial advisor about paying all taxes owing on your settlement, since penalties are strict for evading your taxes. An expert can also advise you on appropriate deductions to limit your tax burden.
- Pay Medical Expenses First
In some cases, the terms of your settlement may dictate that the money must go toward paying your medical expenses first. You don’t want the penalties for going against those terms.
If there’s no such proviso in your agreement, you would still be smart to make these expenses a priority. What you owe will gain interest over time, and you’ll end up owing as much as twice the original bill if it’s not handled quickly.
- Cover Your Debts
After you’ve taken care of medical expenses, put some money toward your debt. Credit card balances, auto loans, personal loans, and home mortgages all accrue interest quickly. The faster you can pay down your balance, the less you’ll owe in the long run. Start with your highest-interest debts and work your way down.
Putting money into the stock market, real estate, or a business can be an excellent way to double or quadruple your earnings. However, investing is not an adventure to be taken lightly. Study the market carefully and speak with a professional before getting in deep with investments. Some can go sour just as quickly as they can multiply, and if you don’t know what you’re doing, you’re more likely to lose money before you gain.
- Get Professional Financial Advice
Reading articles on the Internet is a decent way to expand your financial knowledge, but it might not be enough to help you make the smartest investments. You’re also more likely to make emotional rather than financially wise decisions with your money.
Talk to a professional financial advisor about the best ways to use your settlement. He or she can offer advice on budgeting, investments, and savings accounts, among other things. Experts can help you create an action plan that will get the very most out of your settlement money.
- Save for Higher Education
One of the most valuable investments is higher education. It opens countless opportunities to increase your income potential. You could get a better job, see steady returns from your investment, and enjoy a higher quality of life.
If you’ve already reached the highest level of education you desire, save for your children. Give them a head start by helping to cover the costs of schooling.
- Put Equity in Your House
If you’ve always been a renter instead of a homeowner, this might be the time to buy a house. Go for something that meets your needs but is also affordable, so you retain a little money for other things.
If you own a home, use the cash to build some equity into it. Simple updates can raise the value of your home substantially so you get more on resale.
- Give Back
Not only would giving a portion of your settlement to charity feel great, but it’s tax deductible. It’s a smart financial decision that lets you keep more of your settlement, and it might make you forget some of the pain you went through to earn it.
- Open a High-Interest Savings Account
A financial advisor can direct you to high-grossing savings accounts. These accrue compound interest on a large sum of money, and the interest is higher when it’s locked for a certain amount of time (such as 10 years).
Depending on the amount you put in and how long you wait to take it out, by the time you withdraw the funds, you could earn 10 times the initial investment. It’s an excellent way to save for retirement if you don’t have a 401(k).
- Create a Memory
There are plenty of financially savvy things to do with your money, but that doesn’t mean you can’t have a little fun. Do something you’ve always wanted to: skydive, climb Mount Everest, visit Disney World with your kids.
Money can do some amazing things for your future, but it can also help you live in the moment and create lasting memories.