In this issue:
- Sudden wealth – how not to blow it
- 4 important steps to protect your sudden wealth
- 10 ideas on what to do with your tax refund this year
- The 4 things you should never do with your tax refund
Cash windfalls are a nice problem to have. They can plump up bank accounts either unexpectedly (lottery jackpots or out-of-the-blue inheritances) or expectedly in the form of hefty performance bonuses or proceeds from the sale of a business or other major asset.
For most people, though, there are potential pitfalls to avoid when dealing with that money.
The classic examples of what not to do with sudden wealth come from the ranks of Canada’s lottery winners. There are numerous sad stories of rags to riches to rags lottery winners who burn through their winnings in just a few years, ending up with a collection of expensive toys and not much else.
Whenever I meet with people that come into sudden wealth, I see a lot of similarities: they’re overwhelmed, panicked and unsure of what to do with the newfound money. I am not referring to an expected inheritance—I’m referring to instances like winning the lottery, getting a settlement from a lawsuit, or having any large sum of money that unexpectedly hits your life.
Sudden wealth can change your life, hopefully for the better, but it could potentially end up in disaster if you do not follow a few simple but very important steps. Once you receive the money, the first and most important thing you should do is: nothing! Let reality settle in and get used to the idea that you have this new wealth.
This week I put on a jacket that I haven’t worn for quite a while, and when I reached into the pocket I found a $20 bill. What a great feeling. You gotta love found money.
A tax refund is a lot like that. If you’re getting a refund, the money was always yours, but you’re now being reacquainted with those dollars – and I know it feels pretty good. Setting aside the fact that you were actually lending the government your hard earned money, free of charge, have you given thought to what you’re going to do with your tax refund this year? Consider these 10 possibilities.
A whopping 64 per cent of tax returns processed so far yielded refunds, with the average cheque or direct deposit from the CRA coming in at $1,650.
The money will generally land in your mailbox or bank account within two weeks of filing, if you sent in your return electronically, or within eight weeks, if you mailed your paperwork the old-fashioned way, according to the CRA.
The cash is yours to do with as you please. However, if you want to get the most out of it, you should probably avoid the following:
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