Inheritance, Raise or Other Influx of Money

How to handle sudden extra cash

Whether it's your yearly bonus or an unexpected inheritance, an influx of money can be an opportunity to bring you closer to reaching your financial goals, if you plan ahead.

Stay focused

If you've come into significant new wealth, take time to get over your initial euphoria. For a brief period, put the money in a low-risk money market or savings account, where you can access it when you're ready. Because of possible tax issues arising from your windfall, consider seeking advice from a legal or tax professional.

Set your priorities

Short term, you may decide to apply a portion of the money to paying off high-interest credit cards, or to creating an emergency fund that's the equivalent of three- to six-months' salary. But putting even small additional amounts toward long-term financial goals could be lucrative, as that money has the opportunity to grow over time through compounding. This is particularly beneficial when the account is tax-deferred, as with your RRSP.

Reassess your financial strategy

Having more money to invest, even if it's just 1% more than you're already investing, can alter your time horizon, financial targets and risk tolerance. You may want to reach your existing goals sooner. You may decide to add to or expand them. You may feel more comfortable with a slightly higher level of investment risk. Adjust your asset allocation to reflect any such changes.

Make it automatic

Why let new money be a temptation to a spending spree? Arrange for automatic contributions to your retirement savings and investment accounts. If possible, increase your retirement savings contributions with each pay raise. Think of it as a way of paying yourself first.

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