Ask an Adviser – What to do if you receive a lump sum of money?

October 20th 2022 | Categories: Estate Planning & Inheritance | Ask An Adviser |

What to do if you receive a financial windfall or a lump sum of money

I have been hearing and reading more and more about the fact that we are about to go through the most significant intergenerational wealth transfer in Australian history. According to the Productivity Commission, $3.5 trillion over the next two decades will be transferred between members of the “Baby Boomer” generation to their children and other heirs.

This has started to happen, and we are beginning to see more people come through asking the question, what do I do now I have received this money?

I am guilty, like so many others of daydreaming and getting caught up in thinking about what we’d do with a financial windfall. It’s usually around winning Tattslotto, or striking it rich and investing into the next Amazon or Google. But in reality, a financial windfall is more likely any amount of money that you receive that isn’t part of your normal day-to-day budget. Examples of financial windfalls may be a redundancy payout, an inheritance, selling off part of your business or divesting of any asset that’s grown substantially in value.  

Step 1 – Think About Your Goals

A lump sum, no matter how small or large, could help you start working towards your dreams; perhaps a dream home, an education fund for your children, or even an investment portfolio that will compound and grow. With so many options and ways to spend it, knowing what’s most important to you is the first place you should start.  

You can also check out our most important goals worksheet.

Step 2 – What is the hurry?

You didn’t have it before, so you can afford to wait while you consider your options. Rushing can lead to mistakes and waiting allows you time to gain a greater understanding of the impact this money can make in your life and to spend more time on step 1.  It may take you some time to work out what you want to do, so consider putting the funds in a term deposit so you can earn interest in the meantime and gain clarity on exactly what your best possible life might look like and how the money can help you achieve that.  

Step 3 – Shamelessly, seek professional advice

For every success story, there are often countless other stories of those who squandered a windfall and ended up right back where they started or perhaps even worse off. As a result, seeking professional advice is paramount in ensuring that silly mistakes are avoided, unintended consequences are considered and strategies are put in place that aligns with your own personal goals and objectives.

In our experience, when working with our clients, we recognise the importance of understanding people’s attitudes, personal experiences and mindset around money and investing, making sure that we work with them to do what will be good for them both financially but also in their life.

Once you’re clear on what’s most important to you, your goals and your financial situation, you can begin to look at the different ways you can use the lump sum of money.  

Learn more about advice here.

Step 4 – Splurge a little

Assuming you are getting advice and building on a suitable plan, I would suggest allocating some money to a guilty pleasure, a special purchase or a family trip to celebrate life. In situations like this, we can give you clarity and comfort with respect to how much you could spend without dramatically impacting your overall plan.

You can check out our articles about budgeting here.

Step 5 – Consider your options

Should I pay off my home loan with a lump sum?

Should I buy an investment property, or two?

Should I put money into superannuation?

Should I buy shares?

Should I set up a Trust?

Can I retire early?

Does this mean I pay more tax?

The answer to each and every one of these questions may be yes depending on your personal situation and goals and in reality there is no one correct answer.

We know that there are a lot of factors that need to be considered when choosing the right investment. Investment type, market timing, your level of risk and an overall wealth management strategy all need to be thought about.

Here at Invest Blue, we are able to offer strategic advice that will benefit you long into the future and help you live your best possible life. When you receive a financial windfall, we want you to feel confident in your decisions about how to use it.  

Adam Winstone
Financial Planner

Connect with Adam Winstone on LinkedIn

If you’d like to discuss your personal situation with one of our friendly team, please contact us today.

Want a Complimentary Consultation?

Fill in the form for a complimentary consultation with a Financial Adviser and start living your best possible life.

What you need to knowThis information is provided by Invest Blue Pty Ltd. (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice regarding those matters and seek personal financial, tax and/or legal advice before acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.