If your client experiences a financial windfall, your first task is to prevent him or her from making any rash errors of judgment — such as giving away large amounts or falling prey to a fraudster.
These steps can help you keep your client on the right path:
> Park the money in a safe but liquid vehicle such as a money market fund or a bank account. You’re not aiming for returns here — just to keep the money secure until you and your client have devised a plan.
> Allow a controlled spending spree — with up to 10% of the windfall. Let your client have some fun now, so that later, when it’s time to think about saving, he or she won’t feel deprived.
> Pay debts. For some clients, eliminating debt would bring a noticeable lifestyle improvement. If your client continues to work, there will be more disposable income and more cash for retirement saving.
> Create a plan. Once your client has enjoyed that lavish vacation or bought that new car, it’s time to focus on the future. Create a financial plan that incorporates the new money into your client’s goals.
— DWARKA LAKHAN