Financial Planning Tips for Your Personal Injury Settlement
There’s never a bad time to become financially literate. When you come into money from a personal injury settlement, then it is really time you quickly learn about it. It involves making good decisions with your money from budgeting to investing so you don’t have to worry about money.
A big settlement can disappear quite quickly so financial literacy takes on added importance. Financial planning takes on a lot of different forms and there is no one size fits all. Whatever fits your needs and style is what will be best for you.
If you used a lawyer like Lamber Goodnow Injury Lawyers Chicago then you’ll want to be smart with the money they worked hard to get on your behalf. In this article, I will go over several ways that you can plan financially for your personal injury settlement.
Take Care of Your Taxes
Generally, your settlement is not considered income. You should be able to get every dime of your settlement minus the cost of the lawyers.
This does highly depend on the type of injury that your settlement was based on. For instance, if your settlement was for mental anguish or emotional distress caused by an accident, then this money is probably going to be taxed. This is especially true if the compensation was for money that was lost as a result of the emotional distress.
Also, if you were awarded punitive damages that are meant to punish the person or company who caused your injury through their negligence then this money will be taxed.
However, if you were injured physically by a faulty product and had medical expenses and lost income then this is not likely to be taxed. Unless, again, part of the settlement was for punitive damages.
The long and short of it is that you will need to talk to a tax expert or accountant to make sure that you are taxed fairly for your settlement. You don’t want to pay too much, but you also don’t want to underpay and risk penalties.
Make A Plan
Take stock of your current financial situation without including your settlement. Do you have a lot of credit card debt? Have you been putting off repairs to your car?
This is the time to consider taking care of some nagging items on your financial to do list. Paying down debt is a good idea to focus on as it can hold you back from making good financial decisions going forward. Start with high interest loans first and then pay off your others as you see fit.
Any other problems that you have been having can now be taken care of so you can start using your extra money to help you out in other ways.
An education is one of the best investments you can make because you are investing in yourself. Having a degree can get you a much better job than you had. And if your injury has meant not being able to do the job you previously had because it was physical, then learning a new career will help you to keep earning an income.
You can also make more money than you had by learning a new skill or being able to grow in the career that you already had because you became more specialized.
Make Your Money Work for You
Once you’ve paid for the items in the other sections, then this is a good time to use what’s left to make some good investments.
You don’t want to risk your settlement in risky investments like investing in a startup. But, rather it is a good idea to put your money into stocks or index funds. There are many ways to put money in the market without taking on a high-risk investment.
Index funds pay between a 6% and 8% return on average and are very low risk. ETFs are a good way to invest passively and can also give you steady return without taking on a risky investment.
Don’t Spend It All
Don’t be afraid to treat yourself with some of the money to enjoy the windfall. A vacation or some new clothes will make you feel good and is a responsible way to enjoy the money.
But, put a limit on it. Make sure to have a solid budget and stick to it so you don’t end up wasting the money. Keeping a careful eye on it will ensure that you have an income derived from the settlement.