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Lump Sum Of Money Fall From The Sky

Making The Most Of A Lump Sum

Imagine what you would do if you suddenly received a large lump sum of money. The first thought for many is to fulfil immediate desires, like taking a big family holiday, or to purchase expensive things that change your lifestyle for the better. It’s tedious to think responsibly about a hypothetical large amount of money being given to you. But what if it wasn’t hypothetical? Windfalls are more common than you think, so take a moment to have a think about what you would really do. Would you blow it, or take steps to grow it?

Would It Really Ever Happen To Me?

Coming into a large sum of money sounds so fantastic that many just assume it would be too good to be true. The truth is however, that windfalls are more common than you think and there are several different ways they can occur. Life as we know it is very unexpected and perhaps one day you will be faced with a legal settlement, a medical discharge or a compensation payment. The baby boomer generation before us were quite a financially successful one, so many are now seeing inheritance amounts coming their way. Thinking about it in a realistic way like this, the thought of managing a large amount of money like this can feel a little overwhelming, especially when you realise that it may only occur once in a lifetime and without advice and a strategy, there’s a big chance it may disappear fast.

Two choices present themselves here. You could get excited and blow it quickly on big purchases, and perhaps leave yourself financially worse off than you were beforehand, or you could acknowledge the fact that you might not have all the skills and experience to manage it and get advice to build a strategy. Doing the latter could very well change your financial future and perhaps even the financial future of generations to come.

Surround Yourself With Good Advice

The very first thing you should do when you receive a lump sum is to take a deep breath and try to think clearly. It can be quite emotional coming into a lot of money, so try not rush into plans of action. The next crucial step is to make an appointment to see your financial adviser to help you understand your options and develop a plan of action, tailored to your own situation and objectives. Money is a very easy thing to waste and lose. Putting a solid plan in place for your lump sum means that you are assigning every dollar in your lump sum to a specific role, so it does not just disappear over time. In saying this, below there are some ways you can assign your lump sum of money, to ensure you do not waste this rare opportunity to grow your finances and invest for the future, while still enjoying what you have got.

Pay Off Your Debt

The first and most important thing for you to do when you receive a financial windfall is to get rid of any current personal debt. It will be hard to invest for the future or enjoy what you have been given when you still need to make regular debt repayments for your car or credit card. Any personal debts need to be paid off as soon as possible before you can begin to assign the rest of your new funds.

Gift Some Of Your Lump Sum

Giving to others is something clients often want to do, whether it be to charities or to give family members a leg up. Discretion is advised in this area however as coming into money can often mean many long-lost relatives approach you for gifts or loans.

A practical view of gifting is to look at the lump sum as a pie. Invest the lump sum and allow the pie to grow. Over time that means that the slice that is assigned to “gifting” grows and enables you to give a bigger slice whilst still maintaining the original capital. It also enables you to evolve your charitable donations overtime, for example, one year choosing to donate to the bushfire relief, another year you may choose the Cancer Council. Alternatively, one year gifting money to a child that is getting married, a few years later gifting to another of your children for the same reason.

Put An Emergency Fund In Place

Get yourself a savings account with three to six months worth of income and make sure it is not accessed unless there is a real emergency. Having an emergency fund in place will give you peace of mind to know that even though life can be very unpredictable, you will have a financial plan in place to take the pressure off and help you cope.

Pay Down Your Home Loan

For many people, a mortgage is the biggest debt eating up finances by way of repayments. Using some of your lump sum to pay down your home loan means saving thousands in interest and gets you closer to living your life free from a mortgage. Living a life without a big debt like this means being more carefree, generous and flexible and makes your other financial objectives more successful without big repayments hindering them.

Invest Some Of Your Lump Sum

Speak to your financial advisor about the best way to invest part of your lump sum. This will all depend on your personal circumstances, objectives and risk profile. You may want to invest in shares or buy a property to earn rent from. Whatever you do, you will want to avoid more debt hindering your future goals, so make sure you get the right advice and only invest what you can really afford with your finances.

Enjoy The Rest

After you have gone through the appropriate steps above to ensure your financial future is set up for success, it is important to take the rest to enjoy and do those things you have dreamed about before you received the money. Now is the time to update your old car and buy a new one outright with cash, take a family holiday or make a list and go shopping because you can. If you have been responsible with your lump sum, you can relax with the rest guilt free and that will be an amazing feeling.

Receiving a large sum of money is not a rare occurrence as you may think, but it may only happen once in your lifetime. It is crucial that you put a plan in place with your financial advisor before you do anything with a large amount of money like this. It is too important to assume you can work it out by yourself, when you can speak to a professional to help you navigate your objectives and situation, as well as understand what your options are.

For more information on what to do with a lump sum get in contact with Elliot Watson Financial Planning on 02 4038 1623.

The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser.

The views expressed in this publication are solely those of the author; they are not reflective or indicative of licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author.

Elliot Watson Financial Planning Pty Ltd is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.

Elliot Watson

Elliot Watson*

Elliot Watson is an award-winning Certified Financial Planner with over 15 years' experience. He is passionate about helping people grow and protect their wealth.

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