What Should I Do With My Settlement Money?
Bill Allen | October 10, 2023 | Personal Injury
If you’re asking yourself, “I won a settlement–now what?” please keep in mind that you’re not the first person to wonder what to do with settlement money. It’s important to start planning in advance, however.
If you don’t, your money could be gone in the blink of an eye, with you wondering where it all went. Following are some basic principles. However, they are only the tip of the iceberg of financial literacy.
Say ‘No’ to Requests for Money
The first step you need to take, of course, is to learn how to protect settlement money. In all likelihood, you will attract many new ‘best friends’ once people realize that you’ve won a settlement.
You should learn to say no to people who make these kinds of requests from you. That includes ‘no’ not only to requests for gifts or loans, but also ‘no’ to ‘investment opportunities’ from people whose motives you have reason to suspect.
Avoid Impulse Purchases
So, now you can finally afford that Maserati. Be careful what you purchase, especially when it comes to items whose value arises from the social status they purport to provide. A brand-new Maserati is nice, but how about a 10-year-old Maserati? Think ahead.
Pay Off Your Medical Expenses
Pay your accident-related medical expenses down to zero. Additionally, your injuries might be serious enough to raise the specter of the need for long-term care (nursing home care, for example) You should definitely set aside any money you might need for that purpose. Alternatively, you might consider long-term care insurance if it’s not too expensive.
Repay Any Debts You Have Accumulated Because of Your Injuries
If you raided your credit card accounts to survive while you were recovering from your injuries and, therefore, unable to work, now is the time to pay off these debts. Any debts you accumulated because of your injuries should get top priority.
Pay Your Taxes
You can classify damages as either compensatory damages or punitive damages. Compensatory damages consist of economic and non-economic damages. You can win compensatory damages without winning punitive damages (in fact, this is the typical case), but you cannot win punitive damages without winning compensatory damages.
The IRS will generally not tax you on your compensatory damages, though there are exceptions. You might also lose some deductions that would otherwise be available for the following tax year.
Finally, the IRS taxes punitive damages as ordinary income. Speak to a tax lawyer if you have detailed questions. And remember, tax law can change and may have changed since this post was published.
Establish an Emergency Fund
Your emergency fund should add up to three to six months of your regular income. Commit to not using it except in case of–well, emergency. So many things in life change when you are no longer living paycheck to paycheck.
Your options expand, and you can afford to take chances that would be foolhardy if you hadn’t prepared yourself a financial cushion to land on.
Consult a Financial Advisor
If you have possession of a large sum of money, there is no substitute for the assistance of a professional financial advisor. Your financial advisor won’t give you cookie-cutter, one-size-fits-all advice. Instead, their advice will be tailor-made to your particular financial goals and risk tolerance.
Invest in Income-Producing Assets
Some say that the difference between the middle-class mindset and the wealth mindset is that the middle-class trades time for money (at a salaried position), while the upper class makes money by investing in income-producing assets.
Seek Financial Literacy
Knowledge is power. The attainment of financial literacy is a long-term project. It never ends, because the world keeps changing. Read books and attend workshops on financial literacy. Treat your educational project as ongoing, as it always should be.
Let a Ocala, Florida, Personal Injury Attorney Handle Your Claim
It won’t matter what you do with your settlement if you don’t win one or if it is too small to work with. If you have a significant personal injury claim, however, the best way to increase the size of your settlement is to retain the services of an experienced Ocala, Florida, personal injury lawyer.
Contact Our Ocala Personal Injury Law Firm at Allen Law Firm, P.A. in North Central Florida
We have three convenient locations in North Central Florida: