How To Manage Unexpected Money
“The best kind of prize is a surprise!” - CHARLIE AND THE CHOCOLATE FACTORY
Screenplay by John August, Directed by Tim Burton
(3.5-minute read)
There are many examples of coming into unexpected money. Maybe an inheritance is coming your way. Writers can suddenly sell a show. Directors may have just gotten offered their first feature and it’s a big one! Whatever the scenario, there are a few things you might want to keep in the front of your mind.
MANAGE THOSE EXPECTATIONS
If you know that you’re in line for an inheritance in the near-future try not to plan for it. There’s a chance it might not come. Everyone’s situation is different but I know of a few people who were counting on an inheritance from a loved one but it fell through. It wasn’t anyone’s fault and their loved one had every intention of leaving a generous gift. But unforeseen circumstances happened and, by the end, there was no money left to give. I’m sure you can imagine the types of unfortunate situations that may happen, most of them health related.
So planning for an inheritance can be a dangerous scenario. The more prudent idea is to plan for it to NOT happen. Then if it does you can make the adjustments accordingly, usually in a good way. But planning for that money to arrive, then to have it not show up may involve adjustments you are not ready to make.
The same thing could happen to a script, a show, or a feature. We all know someone, or have been the victims of, a project being pulled at the last second. You and your agents all thought it had the green light and then the executive moved to another studio and your deal was squashed. It can happen suddenly. Now you’re in the mourning phase plus you’re not getting the big sum of money you were counting on. It’s a one-two punch. By not mentally spending that money perhaps you can ease the pain and only make it a one-punch.
IT’S AN EMERGENCY
If you don’t have the appropriate emergency fund established then maybe this unexpected income can fix that. In this industry you can easily go six months without work. Do you have enough in your emergency fund to cover those slow periods? Do you have a spouse or partner with steady income?
Whatever your scenario is you should have an emergency fund set up. Figure out your average monthly living expenses then multiply it by however many months you need for this emergency fund. For some of you who have a spouse or partner with steady income and no kids, perhaps three months is fine. If you don’t have a partner or if you’re the sole income provider then it’s not unheard of to have 9-12 months of an emergency fund stashed away. Maybe this unexpected windfall can completely fund this amount with the click of a button.
SIZE MATTERS
Do you have big expense in the future? It doesn’t necessarily have to be next year. It could be saving for your children’s college education. It might be a four-week vacation to another country. It could be a house. Whatever it is, think about how you’ve been planning for that. If you’ve been putting X amount away per month maybe you can fund it all right now. Maybe funding 75% of it thanks to this new money works better for you. But if it’s a big-ticket item then think about making a bigger payment toward that goal. If it’s an important goal in your life then it might be worth it to pay for it now.
THE OTHERS
A few other things to consider would be:
Did your life insurance needs change? If so, take another look at this to establish the appropriate amount of coverage.
Do you have debt? You might want to consider paying down, or paying off, debt by prioritizing those with high interest rates, such as credit cards.
Did you consider the tax consequences? Make sure you know if you’re going to be taxed on this new money. You’ll want to set aside the appropriate amount in order to pay state, local, and federal taxes.
Always understand your personal situation and do what’s right for you!
If you’d like more information about managing unexpected income you can schedule a complimentary meeting HERE.
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