If you are expecting a financial windfall from a personal injury or workers’ comp settlement, you might not be sure what to do with the money. This concern is especially common with people who are not used to possessing large sums of money, because no matter how much you are getting, there are endless ways you can spend it, and making the wrong decisions could cause these funds to dry up much more quickly than you expect.
Before we get further into the strategies for protecting and managing your personal injury settlement, it is important to make sure that you have the proper strategy in place to secure a maximum settlement award. Perhaps you are dealing with an insurance company on your own, for example, and you are not sure that you are being treated fairly.
Whenever you are involved in a personal injury or workers’ compensation claim, it is always a good idea to at least speak with an experienced attorney, so your case can be assessed, and you are able to make the most informed decisions. Almost all injury lawyers provide free initial consultations, so all it costs you is a little bit of your time to find out where you stand.
If you are involved in any type of accident or workplace injury claim in Alabama, Burge & Burge is here to help. Call our office today at 205-251-9000 or message as online for your free consultation and case assessment.
Protecting and Managing your Personal Injury Settlement
When you are expecting a lump sum settlement, the overriding strategy should be to use a significant portion of the money in a way that will put you in a better long-term financial position. Toward that end, here are some steps and strategies to consider:
Keep Your Settlement Funds Separate
The first thing you should consider doing is opening a separate account to put your settlement money into. There are several reasons to do this. First and foremost, this makes it easier to keep track of how you are spending your money, where it is going, and how much you have left.
Secondly, personal injury and workers’ comp settlements are generally exempt from creditor bank garnishments, but in order to keep collectors from getting at your money, you should not commingle it with other funds. Thirdly, you should be able to keep your settlement money if you need to file bankruptcy, but again this requires you to make sure it is not mixed in with the rest of your money.
Pay Off High Interest Debt
If you are carrying balances each month on credit cards and other high interest loans, you should make it a priority to get these debts paid off if you have the funds to do so. High interest loans are a cancer that will eat away at your finances, so if you have the opportunity to get rid of them, take advantage of it. Furthermore, make a plan not to accumulate these types of debts again.
Create an Emergency Fund
Along with paying off debts, most reputable financial planners advise that consumers create an emergency fund that will be available when an unexpected adverse event happens. Your goal should be to have 6 to 12 months of income in an emergency fund – but start with whatever you can. Even having as little as $1000 can provide you some cushion in the case of a more minor emergency.
Save for Retirement
If you do not already have a retirement account, now is the time to start one. If you are working and your employer has a 401(k) plan or similar, it is usually best to open the account there as they will probably be matching at least a portion of your contribution. If this is not an option, you can open an IRA with part of your settlement funds.
Invest in Your Education
This will depend on what season of life you are in, but for some people, it makes sense to take a portion of their settlement funds to further their education. For example, maybe some type of specialized training will allow you to get a better position at your company with higher pay. Or maybe getting a Master’s degree will open up some opportunities that would otherwise be closed. Investing in your education will often pay for itself many times over in future career opportunities.
Find a Trustworthy Financial Advisor
A large number of people have very little training and expertise with handling money, and you might fall into this category. If so, it would be extremely beneficial to find a reputable financial advisor who can help you manage your settlement funds. Your financial advisor will provide some of the same advice that has been given here, but they will also be able to come up with a plan that is tailored to your specific needs and goals.
Beware of Financial Predators and Pitfalls
Finally, we would be remiss if we did not leave you with a warning about financial predators and pitfalls. These can come in many forms, and you need to be careful not to allow yourself to get caught up with any of this.
For some people, it’s family members or so-called friends who come out of the woodwork asking to borrow money when they learn that someone that they know has received a financial windfall. For others, it’s snake oil salesmen peddling “get-rich-quick” schemes that promise to double, triple, or even 10x your money with very little effort. Still others may be tempted by the idea of parlaying their funds into more money at the local casino.
Many people have fallen into the trap of believing a made-up sob story or thinking that they can make quick money without putting in the work. Be aware that these traps are out there and do your best to avoid them. As far as get-rich-quick schemes and other financial “opportunities” go, it is best to live by the old adage “if it sounds too good to be true, it probably is”.
As far as people wanting to borrow money, there might be times when you feel bad for someone and you want to help. If you decide to do this, just keep in mind that you are not a bank and you do not have a systemized way of collecting the money back if the person who borrowed it doesn’t want to pay.
For this reason, you should always make sure that any amount of money that you loan to someone is money you are able and willing to part with. If they pay you back, great! If not, then you just write it off as a gift. Either way, you are not going to lose any sleep over it because this money was earmarked for discretionary purposes like charity or helping loved ones who need it.