Treat yourself after a Windfall, but do it Conservatively

The fun part of acquiring new wealth is splurging. Most people have, over drinks, played the ?What would you do if you won the lottery?? game at least once. But instead of deciding which trip you?d like to take or which car you?d like to buy, start by deciding what percentage of your windfall you're willing to spend to do something special. Then decide how to treat yourself within the limit you set.

Say you receive a $200,000 bonus for winning an Olympic gold medal. Instead of reaching for the phone to book a holiday to Bali, reach for a pen and determine the limit of your ?fun? spending. The percentage you pick isn't terribly important. What is important is that you pick a percentage - and stick to it. Effectively managing new wealth is all about planning.

What is your number, one per cent? That's $2,000. Doesn't sound like enough? How about five per cent? That's $10,000 you'll have to spend.
But wait - why not spend 10 per cent? While that is still a relatively small percentage, it yields $20,000 in ?fun money.? Treating yourself on that sum could be fantastic!

But - and isn't there always a ?but?? - think about that 10 per cent in real terms. If your $200,000 is from a taxable source it probably puts you in the 45 per cent tax bracket; assuming you don't take any financial steps to minimize your tax burden, your original $200,000 could be cut to $110,000. If you then spend $20,000, you're left with $90,000 - and your original lump sum is cut by more than half.

Have some fun with it, but do so within the limits you set before you start to spend.

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