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So you have decided that selling your structured settlement payment makes the most sense for your current situation. And you are probably right. But, seller beware! Now only do you have to watch out for companies that are purchasing structured settlement payments, but you have to watch out for yourself! Studies have shown that more than 80% of people who receive a lump sum settlement of cash spend all of the money in three to six years. Money that might have paid their rent for ten or twenty years, or may have kept the utilities running and food in the fridge for more than a decade, all gone – in just a handful of years.
When you ask yourself, “Should I sell my structured settlement?” You need to think about what you need the money for and what your financial situation will be after the sale. If you want to avoid becoming another “lost their money” statistic you need to adhere to the following steps:
The first step is to spend the money that you need to on the thing that originally necessitated your selling your settlement payments. This means if you sold your payments to get a new roof then get a new roof before you spend a penny. If the idea was to pay off the house, then pay off the house before you even buy a doughnut. Spend the money on what you meant to.
If you do what you intended the money to be used for and there is money left over after you sell a structured settlement payment, the best thing to do is to invest it wisely. Black on a roulette table is not investing wisely. Investing wisely means to get financial advice or research an investment that you reasonably believe will make money and invest your extra cash there.
You might wonder, “Can I invest the money in a Roth IRA?” That’s may be a great idea! Suze Orman, Clark Howard and others tout the Roth IRA as one of the best investment vehicles around. This is because the money grows tax free, and you take the earnings out tax free when you retire. If you have extra money to invest consult a financial adviser in your area for advice.
Let’s say that you sold payments and netted $40,000 to buy a car or pay for some home repair. Lucky for you, that expense ended up only being $32,000, so you have $8000 left over. Yahoo! What do you do? Well, as we said in step #2, you should invest the money. But, come on. This is the real world. We know that you are going to feel that money burning a hole in your pocket and want to treat yourself a bit. So, our word of caution – be frugal.
Decide what amount you feel is okay to “enjoy” yourself with, take out that amount, and then invest the rest… fast. Maybe you decide to take out a few hundred dollars to take the family to Disney, or to buy a family computer – we are not saying this is a good idea, it is not. But, we are realistic and know that people need a treat every once in a while. Just be careful and make a smart decision – don’t overspend.
We talked about this already, but it bears repeating – you must budget for the future. Pay off bills to make your month to month bills easier to handle. Put yourself on a cash diet – no ATM cards, no debit cards, and no credit cards. Create a budget that accounts for every penny you earn and spend. Be wise with your money from here on out, because if you sold payments you may not have much of a nest egg to draw on in the future.
And at Strategic Capital it is your future that we are concerned about. Call us today and we will do our best not just in purchasing structured settlement payments from you but to answer your questions about your structured settlement payment, point you in the right direction, and provide you the resources to make the best of your financial situation.
We are all human, and as humans we are prone to temptation. It is natural that when you come into a lump sum of cash you will feel the desire to buy yourself a “treat” or a little indulgence. But use caution and common sense. Pay off the things that you really need to before you spend any money on anything frivolous. Also, here is a tip to avoid overspending… never spend on a whim. If you are thinking about buying something as a treat pick out what you want, then think about it for a few days before you actually make the purchase. By then you may decide that you can live without it after all.