How to deal with windfall gains, sudden money, retirement corpus

Paying off high cost debts and reducing your loan amount is always a sensible decision because it not only reduces your liabilities but also provides you a sense of financial freedom. Personal loans and credit card debts are high interest-bearing debts that can take a significant toll on your monthly income; therefore, it is always a good idea to pay off such obligations. Personal loans, minor asset loans, and auto loans can all be paid off because there is no benefit to keeping the loan. 

That is a pivotal step. Obviously, you don't want to bury your unexpected profits under your pillow or in a savings account. That is an inefficient use of these resources. Rather, you can allocate the funds based on your time range. For example, if you want to spend some of your funds after a year, Liquid Funds can be ideal. If you plan to spend the corpus within three years, you can consider Short Term Funds. Finally, if you will require these funds in 5-7 years, Equity Funds may be a reasonable option for you. You can allocate funds based on when you need them.

Risk tolerance is not just dependent on your age but also on your financial capacity. The big dilemma is what to do once you've realised your windfall earnings. One thing you should do is invest around 50% of your money in liquid investment vehicles like with comparatively lower risk Liquid Funds. You can take it a step further. You can set up a systematic transfer plan (STP) from your Liquid Fund to move a portion to an Equity Fund on a regular basis. This way, your money earns more and you benefit from rupee cost averaging. Most of us overlook one facet of getting windfall money. This is the time to hone your skills. Take new classes, gain new talents, or brush up on your present ones; all of them can be far more beneficial to you than you realise at this point. 

As your financial capacity increases, your risk tolerance also increases. That means, if you originally had an allocation of 40% to equities, then the windfall money helps you to enhance your risk tolerance and perhaps increase your equity exposure to 50%. This higher exposure to equities will enable to substantially expand your wealth creation capacity over the long term. This is something you must consider when you get a windfall gain. However, do keep in mind that you also need to preserve your wealth.

Maintain your cool and avoid making rash decisions. Set aside one year's living costs and invest the remainder in low-risk investments for some time. Because it can take up to five years for a windfall recipient to adapt to a new life, this wait allows emotions to temper, and helps avoid impetuous behaviour. Then, develop a thorough plan to achieve your top financial priorities, and track your progress over time.