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Make the most of unexpected moola

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McLEAN, Va. (4/17/12)--"The Three Amigos," Maryland public school employee winners of a recent Mega Millions lottery who will split $105 million after taxes, all say they will continue to work, for now. One winner is going to help his kids pay for college and buy a house for his sister, another will backpack through Europe with her brother, and another plans an overseas trip. All vow to be careful about how they spend their winnings ( April 10).

Whether you've won the lottery or come into unexpected cash by way of a bequest, receiving sudden wealth can be overwhelming whether you're inheriting $10,000 or $10 million.

Here are some considerations that may help you manage your windfall, according to the Credit Union National Association's Center for Personal Finance:

  • Find help. Just be sure the help you get is on your side. Make sure that the person managing your money is registered with the Securities and Exchange Commission,  you'll get quarterly performance reports,  you never pay more than a 1.7% annual money management fee, and you ask to see other client reports.
  • Take first steps. Contact your tax professional for advice about what is and isn't taxable. Also, be aware that each state has its own estate tax rules. Check the Internal Revenue Service website (use the link)  for current rules.
  • Plan ahead. What do you want to accomplish in life and how will this money help you get there? For example, maybe now you can reach a life goal sooner than expected, perhaps by pursuing a different profession or going back to school.
  • Pay off debt. Using your windfall to pay off debt is a great idea, but experts recommend going one step further and figuring out how to avoid building new debt. Set aside enough money to cover future emergencies in case of job loss or a medical crisis.
  • Manage obligations. Have you saved enough for retirement? Are you saving for your kid's education? If not, this is a great opportunity to beef up those accounts. If you still have money left, work with an adviser who knows you, your goals, and your timetable.
  • Splurge cautiously. Figure out what will make your life better long term and what might be fun just for now. Be careful how you spend and how much you spend. Studies show that more than 18% of those who receive $100,000 or more spend it, lose it, or give it away, according to a Consumer Affairs newsletter.
Regardless of your situation, receiving a large amount of money will be life-changing;  the bigger the windfall, the more dramatic the impact is likely to be. Money management is one thing, but managing how your life has changed is another.

For more information about handling an unexpected amount of money, read the "Landing a Windfall" Turning Point in the Home & Family Finance Resource Center.