7 Ways to Spend Your Personal Injury Settlement Intelligently
If you’re involved in a vehicle collision that wasn’t your fault, or you experience some other kind of injury, filing a personal injury compensation suit can provide financial security and restored health. With the help of a great lawyer in your state, you can receive compensation that will not only pay your medical bills, but cover losses related to work and lifestyle changes.
These cases can draw out for several years, though. You might not be grateful for the way you received it, but you’ll probably be thrilled when the settlement money from your injury arrives. This kind of financial windfall is a once-in-a-lifetime boon, and can be life changing.
You may feel a strong temptation to spend it all at once, such as to purchase a new house or vehicle(s). But if you’re financially savvy, you should think about a more intelligent way to spend your money.
Given a smart investment and savings strategy, you could make your windfall work for you.
- Pay Medical Expenses First
First, however, you should pay any outstanding medical expenses. Insurance will have covered the bulk of it, normally, but it usually won’t pay for everything. Retire these bills immediately so you don’t have to worry about them later on.
- Consider Taxes
Sometimes a huge windfall entails hefty taxes. Depending on your tax bracket and the amount of money that comes in, you could see as much as forty percent of your windfall disappear in taxes.
You need to understand the tax implications of your settlement fully before you do anything else. Your settlement may or may not be subject to taxation, but if it is, pay it on time. The penalties and interest are high for anyone who tries to slip out of paying for this.
- Consult a Financial Advisor
The cost of a financial consultation is minuscule compared with what it could save. Most people don’t know how to make their money last or how to invest it for higher returns. A financial advisor can explore your goals and help you make the most of every cent.
If you don’t want to talk to a financial advisor, at least do some online research. By reading articles, using online calculators, and subscribing to financial newsletters via the web, you can learn a great deal about windfalls and how to use them to your advantage.
- Pay Off Your Other Debts
When people suddenly receive a large sum of money, it’s awfully easy to overlook their financial obligations. Suddenly, your old debts seem less imperative than buying a few things you want.
However, if you have a fair amount of debt, you don’t have a lot of assets, which are more valuable than cash. Start with debts that bear the highest interest rates and penalties, and work your way down.
Credit cards are usually the most potentially damaging to your personal credit and carry the highest interest rates. Think about whether you could cut up your extra credit cards to reduce the temptation to go further into debt once they’re paid off.
- Build a Savings Account
After you’ve relieved yourself of as much debt as you can, build an emergency fund. After your injury, you probably became painfully aware of how much you need an emergency fund.
In the event that you no longer have steady work someday, either due to an accident or because you get laid off, you’ll want money in the bank. A common recommendation is to save at least six months’ worth of living expenses.
This is adequate for most people who need time to recover from an injury and/or find a new job. If you’ve paid off your debts, you’ll be grateful if you also have cash on hand in case of an emergency.
- Invest in Education
In most cases, a greater amount of education means higher levels of pay. You’re also more likely to find a job where you’re less likely to be injured again. So consider using a portion of your settlement for continuing education in a field that can get you a higher salary.
- Invest for a Return
Income-generating vehicles such as stock markets, real estate deals, and a growing business make excellent investment options for your remaining settlement money. Stocks, bonds, and CDs can serve as a glorified savings account that will grow and appreciate over time.
You can also invest in a retirement account. The key with any of these ventures is to leave the investment alone for a while so it can appreciate substantially.
You might also derive decent returns from businesses or real estate ventures. Real estate is a typically low-risk investment with a potential for high returns.
A business is more likely to be somewhat of a riskier undertaking, but if you do your homework and can envision high return potential, it’s a great way to increase your settlement money and obtain greater financial stability.