If you’re hurt in an accident that is someone else’s fault, you’ll have an opportunity to pursue legal action against them to recover whatever damages you sustained as a result of that accident. Oftentimes, this settlement includes compensation for a wide variety of things, including medical expenses, lost wages, and even compensation for your subjective pain and suffering.
It takes a long time to negotiate and earn a settlement, and when it finally gets into your hands, you may not know how to properly manage it. What are the most important ways to manage this high sum of money?
Winning a Settlement
The first step of the process is to actually win a settlement. As we already alluded, you can file a personal injury claim against anyone who is responsible for a significant injury you sustained. Together with a personal injury lawyer, you can gather evidence, build a case, and file the requisite paperwork to pursue legal action.
Both you and the opposing party are incentivized to keep the matter out of court. Going to trial is possible, but it’s usually costly and time-consuming, not to mention stressful. It’s better for everyone to negotiate a settlement that is mutually acceptable and in line with reasonable expectations.
Even so, this process can take many months, so it’s important to remain patient during settlement negotiations. Once you come to an acceptable figure, you can finalize the deal. At this point, your lawyer will likely take a fee, other costs may be accounted for, and the rest of the money will be available to you in relatively short order.
Managing a Large Settlement Responsibly
Once you have the settlement in your hands, how should you manage it?
- Consider working with a financial advisor. First, consider working with a financial advisor and/or a tax professional. This is especially important if you don’t have much experience managing or controlling your own finances. An expert can give you the knowledge, guidance, and perspective you need to make better decisions about your newfound money. Your lawyer may be able to offer you some initial guidance, and they can also connect you to a financial advisor who can serve your needs.
- Assess the tax requirements. Don’t neglect the possibility that your personal injury settlement is subject to taxation. Take a moment to assess the tax requirements associated with your settlement, so you can plan accordingly and not be blindsided by a tax bill later in the year.
- Pay your urgent bills. After that, your best move is probably to pay any of your urgent bills that are pending. Depending on the nature of your accident, and your financial situation leading up to the accident, you may or may not have a lot of medical bills, utility bills, and late payments that have piled up. Now that you have access to cash, you can settle these debts and begin moving on with your life.
- Build up an emergency fund. Next, build up an emergency fund. An emergency fund is a set amount of cash that you keep on hand for emergencies and unplanned expenses. It’s an important cushion that can protect you from chaotic developments and prevent you from taking on new debts unnecessarily. It’s an important prerequisite for building a financially stable life, so once your initial urgent debts are taken care of, you should focus on building up this fund.
- Take care of your necessities. With an emergency fund in place, you can use some of the remaining proceeds to address your most immediate necessities. This is a good opportunity to take care of things like home repairs, grocery shopping, and other core needs. You may also want to set aside some money for a few months of expenses, especially if you’re not currently employed.
- Begin paying off your debts. If you have money left over after that, start paying off your larger debts. For example, you may be in a position to pay off your credit card debt, or even your mortgage.
- Invest wisely. With your debts accounted for, remaining settlement proceeds should be invested so they can continue growing and developing. There are many nuances and intricacies that you’ll need to learn here, but you can master the fundamentals if you’re willing to put in the effort. One of the most important strategies, for example, is diversifying your portfolio, or investing in a variety of assets that balance each other out in terms of risks and rewards.
- Think about estate planning. Depending on your age and total assets, this may also be a good opportunity to think about long-term estate planning.
Unfortunately, it’s hard to give precise, universal advice for how to manage a settlement because every person’s financial situation is unique. If you want to manage your settlement money properly, given your unique situation, it’s important to work with a financial professional and/or fully consider all the variables that might impact your decision.
