So you hit the jackpot? Here's what to do with a large payout

Most of us are closer to homelessness than becoming a billionaire. According to a recent Bank of America survey, almost half of Americans believe they live paycheck to paycheck. 

Coming into a large chunk of cash is a nice thought, and for some people it actually happens. A few folks are lottery winners and rolling in cash, while others get large payouts through an inheritance or a refund. 

Regardless of how the windfall arrives, knowing how to manage it is essential; otherwise, you could struggle to make ends meet and possibly be worse off than you were before. Here’s how to handle your money if you end up with a hefty payout.

Understand where the money is coming from

How you receive your money could impact how you handle it, particularly if it's inherited, said Elizabeth Buffardi, a financial planner, founder and president of Crescendo Financial Planners.

"Money is emotional even in the best of times," she said. "Very often, [clients] tell the story of how hard the relative had to work to accumulate it and they want to make sure they honor that hard work by making sure they put it to good use.”

Stephen Kates, a financial planner and principal financial analyst at Annuity.org, says you might need different types of accounts, depending on how you receive your money.

"If the money is in the form of a check or cash, it will be easy to deposit," he said. "If it’s an inheritance, you may need to open the right type of account to hold the assets."

Kates says if you inherit something like a retirement account, you’ll need to open an IRA to move those funds into. If you inherit stock, you’ll need a brokerage account.

Get good advice

Not every financial expert is the same. The kind of payout you get and how much you get can impact where you get help.

"Some people need someone to manage the money they have received," Buffardi said. "Some people are looking for more advice like paying off a mortgage, student loans or credit card debt.  Some people want a holistic overview of everything they have."

If you’ve never talked with a financial adviser or planner, it’s hard to figure out where to start. Consider the help you need and remember that your circumstances might not necessarily be the same as someone else’s, which means the type of help you get may not be the same, either.

"If you will be receiving a large amount of money, you should seek out a financial adviser to help you plan how to invest and manage those assets," Kates said. "You may also need to speak with an attorney or accountant to handle legal or tax responsibilities. With substantial assets, employing a team of advisers may be the difference between generational wealth and dwindling resources."

Look first for a fiduciary financial advisor. A fiduciary is legally and ethically obligated to put your best interest first. Some financial advisers would rather give advice that earns them the most money may not be right for you. 

Also look for a fee-only financial adviser. These advisers and planners get paid a flat rate for their services rather than a commission. Advisers who get paid by commission might be more inclined to sell you products or services that earn them more money, even if those things aren’t necessarily best for you.

Avoid debt and regret

Managing your money depends on several factors, including how much you receive and your long-term plans. Kates suggests starting with an emergency fund and paying down debt.

"Building an emergency fund insulates you from other unexpected expenses or financial issues in the future," he said. "Credit card balances or personal loans can be especially draining on your finances," so you may want to tackle paying off high-interest debt sooner rather than later.

Large purchases might sound fun, but they aren’t always responsible — especially since they might put you in a worse financial position than before.

"These should be limited to planned and vetted choices," Kates said. "The worst thing you can do with your windfall is make spontaneous financial decisions. Plan and evaluate what money is available for spending after you have shored up the other aspects of your finances."

Buffardi suggests managing money one step at a time. Like Kates, she encourages an emergency fund first. After that, it’s up to you.

"What is the goal of this money?" she asks her clients. "Sometimes, clients know exactly what they want to do and sometimes they are overwhelmed by all the choices that they don't know where to start. If they don't have specific goals, I like to go step by step to figure out where they are and how we use this new money to make things better."

Avoid talking to lots of friends and family about your recent influx of money. Money can cause a lot of strong emotions, even among partners and relatives. Do your best to work out a plan with a trusted financial adviser or planner, even if that means expanding your team based on recommended advice.