If you receive a windfall after making a successful compensation claim, it is important that you spend it wisely to ensure that the funds are used to their full potential.
1. Deal with the situation at hand
The amount of compensation you are rewarded will largely be a reflection of the costs you have incurred as a result of the grievance. You should receive enough money to cover the expenses you have been subject to, as well as cash which acts as atonement for the suffering you experienced.
As a result, you should spend as much as is necessary on the likes of legal and medical bills, counselling, or in lieu of your wages if you have been forced to take unpaid leave from work. Use as much as you need to get your life back on track and to help you overcome the problem.
2. Pay off high-interest debt
Due to negotiations in the courtroom, it is often the case that you will receive compensation after you have coughed up for your medical bills and so on. This most likely means that you will have borrowed money in order to make ends meet while awaiting your windfall.
If this is the case, it is crucial that your first step after receiving the funds is to pay off your debts. Failing to do so means you will pay more, through interest charges, in the long-term. Of course, spending frivolously may render you unable to settle these balances.
Once you have addressed all the costs directly associated with your grievance, it is likely that you will have some leftover cash which acts as a redress – almost an apology. You should also use as much of this money as necessary to pay off pre-existing high-interest debt.
Although it may be tempting to splurge on luxury purchases in order to make yourself feel better, the most financially-sound way to use the funding is to settle debts. This is because borrowing money is expensive business, and so being in the black is hugely beneficial to your bank balance.
3. Saving and splurging
If after following the above pieces of advice you still have some money left, then you can consider splashing the cash. However, if you want to reap the rewards over the long-term, you should try to avoid spending more than five per cent of the sum in this way.
Put the rest of the money in a savings account – avoid putting it in your current account, where it will slowly and imperceptibly drain away through your everyday spending. Keep it in a high-interest account and avoid touching it until you have made a decision about its application.
4. Investment
Your money can earn you small profits and act as a financial safety net if you leave it in a savings account, but, especially if you have a substantial sum, it could be worth making the funds work harder by investing them.
If you have limited investment experience and knowledge, it’s a good idea to stay at the safer end of the spectrum, perhaps putting the money into a pension fund. Check out this Which? guide to get an introduction to investing, and go to a financial advisor with any questions.
This article was produced on behalf of Newcastle Solicitors, Beecham Peacock; solicitors that can help you win your accident compensation claim.