What do I do with a windfall?

  • August 10, 2015

Originally published in the News Star on Sunday, August 9, 2015.

Question: I have recently come into a lot of money. More money than I could have ever imagined. I’m not sure where to start or what to do. It’s in the bank and more comes in every month. I’m not sure how long this will last, but it’s already a bunch. I don’t want to be one of those idiots who blows the whole thing. What do I do?

Answer: Windfalls come in all shapes and sizescashI remember a guy who came to see me years ago from out of state. He’d won a big lawsuit and his part of the settlement was over $1,000,000. He never dreamed he would see that much money in his life. He took a vow of poverty, promised to “not change anything” and to not be one of those foolish people who spend it all. This was his ticket.

Well, three years, two wives and one very unfortunate trip to Vegas later, he was broke.

Maybe your windfall comes from an inheritance. Or maybe you won the Lotto.

Or maybe you just own a lot of land in Lincoln Parish. If you haven’t heard, my home parish is hotter than a pistol in natural gas exploration and production. Independent exploration and production companies are utilizing innovative horizontal drilling techniques to breathe new life (and extract old natural gas deposits) from the previously sleepy Lower Cotton Valley Formation. For now, most of the attention is on Lincoln Parish. But leases are also being snapped up in Jackson Parish just to the south.

Old hands are calling it a mini-Haynesville Shale event. But a few land owners with multiple horizontal wells pumping natural gas from thousands of feet below are seeing many dollars come their way.

No matter what the source of your windfall, here are some things to keep in mind.

  • This will not last forever. One of the features of horizontal drilling techniques is that gas comes roaring out of the ground at a ferocious rate. In fact, half the money you ever make off one well may come to you in the first year. The monthly checks get much smaller very quickly. Unless you have a guarantee to the contrary, you need to assume that any windfall coming your way is finite. Don’t build a permanent new lifestyle around a temporary increase in cash flow.
  • This will not solve your problems. Oh sure, you’ll be able to pay off the nagging credit card bills that have been hanging over your head. But if you think you’ll never have another spending problem just because you now have (what seems to you) a lot of money, you’re being naive. More dollars in your pocket just means your (spending) eyes will be bigger. Just ask my friend that went to Vegas. He came back with (among other trinkets) a large yellow tow truck that cost him over $100,000. “It just looked so cool!”
  • This may create new problems. If you haven’t figured this out yet, you’re about to be introduced to cousins you never knew you had, “friends” you’ll wish you didn’t have, and can’t-miss-investment opportunities that various and sundry con men will pitch to you. Ask anyone who has a lot of money – it’s a lot of work to keep the riff-raff away.
  • If you don’t make a plan for this money, someone else will. Before you buy anything more expensive than groceries, before you pay your momma back for being so wonderful to you all these years, before you make the preacher say “Hallelujah!” with your donation, and for sure before you go test drive a new luxury car – stop.

Stop and realize that there will be a plan made for your money. The only question is who will make it. If you spend first and plan later, you’ll likely spend more than you intended and plan less than you should.

If you plan first and spend later, you’re much more likely to spend thoughtfully on items that you can really afford, having planned your affairs so your wealth will be nurtured and grown, rather than wasted and shrunk.

Now that you’ve got a lot of money, you can afford a lot of things you’ve heretofore only dreamed of.

But the one thing you cannot afford is to be without a plan.

 

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Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Email him at bmoore@argentadvisors.com. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5858. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc.  No forecasts can be guaranteed.  Argent Advisors, Inc. does not offer tax, insurance or legal advice.  The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.