Dollars From Sense

– Save Money, Live Your Ultimate Life

Awaiting a Compensation Payout? How to Make Your Personal Injury Settlement Last

A personal injury settlement can provide much-needed financial relief after an accident. However, it’s essential to manage your payout wisely to ensure your funds last and cover your future needs — including ongoing medical treatment you may need. Learn how to make your personal injury settlement last and maintain financial stability long beyond your recovery.

Create a Budget

When your settlement comes through, it can be tempting to throw the idea of budgeting out of the window. But a budget can help you track your income, expenses, and financial goals, allowing you to make informed decisions about your spending and resist the urge to splurge.

Start by listing your income sources — including your settlement and wages if you’re back at work — and your monthly outgoings, such as your rent or mortgage payments, utilities, and groceries. You should also include your future medical expenses for medication and ongoing physical therapy or doctor’s appointments. If you don’t know when you’ll incur these costs and how much they’ll be, err on the side of caution and overestimate. It’s far better to be conservative than overly optimistic and risk being unable to afford unforeseen expenses. You may even have leftover cash you can save for a rainy day or invest elsewhere.

However, a budget is only beneficial if you stick to it. Refer to it regularly and adjust it as needed — such as if your condition improves — to ensure you stay on track.

personal injury

Prioritize Your Expenses

A personal injury claim can result in a massive windfall. But before you splash the cash on a once-in-a-lifetime trip or an extravagant purchase, remember that a large portion of your settlement is meant to cover your economic losses, such as ongoing medical bills and lost wages.

Not prioritizing your expenses can quickly sap your funds, and you may struggle to afford your living costs and any ongoing care you need.

Don’t forget to consider your non-essential expenses, too. Eating out, entertainment, memberships, and low-cost impulse purchases can support your emotional well-being but quickly add up. Setting financial goals can help you balance enjoying your life with creating long-term stability.

Consult with a Financial Advisor

It might seem counterintuitive to spend money on financial advice when your goal is to make your settlement last, but investing in a financial advisor can pay for itself multiple times over.

An advisor can create a tailored financial plan, help you assess your investment options, and guide you on any tax implications related to your settlement to ensure you hold onto as much of your money as possible.

Consider a Structured Settlement

Most personal injury claimants receive their settlement in a lump sum, but there is an alternative — a structured settlement.

A structured settlement allows you to receive your compensation incrementally over an agreed-upon period, which can minimize the risk of overspending or mismanaging your funds.

However, structured settlements also have their cons. Dr. Louis Patino, a personal injury lawyer in McAllen, Texas, explains, “If you have significant medical bills to pay that a monthly installment won’t cover, you might become more stressed than if you had the funds readily available.”

Be sure to discuss the possibility of a structured settlement with your attorney — and consult a financial advisor if possible — to determine if it’s the right option for you.

Pay Off High-Interest Debt

Using your settlement to pay off accrued debt can be a double-edged sword. It can leave you struggling to get by, especially if you have considerable debt. Then again, paying off debt can provide long-term financial stability and savings by reducing or eliminating interest payments and improving your credit score.

If you use your settlement to pay off credit cards or a personal loan, portion your funds and prioritize high-interest payments first. Leave enough to cover your basic needs and, ideally, give yourself a buffer for when life gets in the way.

Missouri Financial Planner Clint Haynes explains that paying high-interest debt allows you to lock in a guaranteed rate of return:

“Suppose you have $10,000 in credit card debt with an average interest rate of 12%. If you pay off the credit card debt, you are effectively locking in a 12% rate of return on your money.

“While you’re not exactly earning 12%, you’re still saving 12% by not having to pay that to the credit card company.”

It’s also vital to avoid accumulating new debt. When paying off loans, the goal should always be to improve your overall financial health, not to become eligible for a higher credit limit or new loan.

Invest in Your Future

Gaining a new qualification, starting a business, diversifying your investment portfolio, setting up a college fund for your kids, owning a home, and saving for retirement are noble goals, and a personal injury settlement can help you achieve them. These investments into your or your loved one’s future can provide focus and prevent frivolous spending. However, dropping a large portion of your settlement on a college degree or business startup costs is no different from blowing your cash on a sports car if you don’t have the money, so it’s vital to weigh the risk versus the reward and select investments within your means.

Consider an Emergency Fund

A nest egg can be a lifeline that keeps you afloat during tough times. While you may never need to dip into a contingency fund — and you certainly hope you won’t have to — you’ll appreciate having one if life throws you unexpected obstacles like job losses, home repairs, or medical emergencies.

Consider setting aside a portion of your settlement — as your budget allows — to cover several months of your living expenses. You ideally won’t have settled your personal injury claim without fully understanding the potential long-term impact of your injuries, but if you opted for a fast resolution to receive your payout sooner, there’s a risk they could worsen over time. This is when a financial buffer can make all the difference.

Effectively managing a personal injury settlement is essential for financial security. Remember that support is available to help you make the most of your compensation payout, allowing you to focus on what truly matters — your recovery and well-being.