Snoop Dogg gifted his daughter $1M for her wedding — and gave advice on how to use it. Do you agree with him?
American rapper Snoop Dogg once sang “with my mind on my money and my money on my mind,” in his 1994 song “Gin and Juice.” Now, the rapper, actor and entrepreneur is hoping his daughter, Cori Broadus, will keep her mind on her money.
He recently gifted her $1 million for her upcoming wedding — and it came with some fatherly advice. On a recent episode of “The Jennifer Hudson Show,” Snoop Dogg explained what he would have done with the money.
“I told her if it was me, my wedding would have been $100 [thousand], and $900 [thousand] would have went in my pocket,” he told Hudson.
But what do financial experts say about his approach?
It turns out — according to financial experts — that spending 10% and saving 90% is sound advice for handling a financial windfall.
“Snoop Dogg’s comment highlights the importance of prioritizing long-term financial stability over immediate gratification, which is solid advice,” Maria Castillo Dominguez, a certified financial planner and founder of Valoria Wealth Management, told CNBC.
A financial windfall refers to receiving a one-time spike in income that isn’t part of your usual income — and it’s often unexpected. A windfall doesn’t just refer to winning the lottery. It could be a gift, an inheritance or an unexpectedly large work bonus. While it’s tempting to spend that on something extravagant (like an elaborate wedding), you may want to take a beat before doing anything impulsive.
For example, do you want to pay off your credit card debt? Do you want to buy a home or pay off your existing mortgage? While there’s nothing wrong with spending a small portion of that money on something fun and frivolous, you could use the rest to generate more money through saving and investing.
For example, if you get a hefty work bonus, you may want to consider investing it in a traditional individual retirement account (IRA) or 401(k) to help lower your tax bill until you make a withdrawal.
“Setting clear goals and even consulting a financial planner can help ensure the windfall works for you over the long term,” Catherine Valega, a CFP and founder of Green Bee Advisory, told CNBC.
Read more: I’m 49 years old and have nothing saved for retirement — what should I do? Don’t panic. Here are 3 of the easiest ways you can catch up (and fast)
Contrary to some high-profile stories of lottery winners squandering their millions, it turns out that most people who receive a windfall take Snoop Dogg’s advice.
One study from Springer’s Journal of Family and Economic Issues found that people who receive a large inheritance tend to save about half of it, while another study from Wiley’s American Journal of Economics and Socoiology suggests that winners of large lump-sum lotteries tend to save and invest large portions.
Of course, how we react to a windfall may depend on our economic background and mentality towards money.
Those who are already inclined to save and invest may continue to do so with a sudden influx of cash, while those struggling to make ends meet may use all of the money to pay off debt. Both of these decisions are valid and can improve your financial future.
It could be helpful to take stock of both your retirement savings and outstanding debt before you spend your windfall. You may want to speak to a financial advisor about where the money would make the most impact to help you reach your long-term goals.
For instance, it could be used to start an emergency fund, become debt free or bolster your children’s college fund.
If the windfall is very large, you may want to assemble a team, including a financial advisor and an accountant, to help you manage it. Depending on the type and size of the windfall, you might also have to pay taxes on it.
For instance, lottery winnings are taxed as ordinary income, as are gifts or inheritances above certain thresholds. The IRS has tools to help you determine if your gift or inheritance is taxable, and your financial team may have strategies to help you minimize the taxes you pay.
So if you’ve just received a windfall, you may want to consider Snoop Dogg’s fatherly advice.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
