What to do with a Lump Sum of Money


Receiving a lump sum of money can be both exhilarating and scary all at the same time.  You know you have a big opportunity to make the money matter and yet you are fearful that you will make a mistake in what you do with the money.

I would consider a lump sum anything that is over what one paycheck would be for you.

Not to worry there are some steps you can take to ensure that you make smart money moves with any lump sum of money.

Don’t Rush

The number one most important thing to do when you receive a big sum of money is to take your time before you make any decisions.  Your emotions may be running high and that is the worst time to make financial decisions.  This is true whether you got the money from a sad occasion such as a death or a good occasion such as winning the money.  When dealing with a sad occasion such as a death give yourself at least a month or two and up to a year depending on how close you were to the person. With happy occasions depending on the amount of money you could wait a weekend to a few months, just make sure the exhilaration has calmed down.  Put the money in a savings account and then take the time to process your emotions.

The only time you want to skip the waiting period is if you are in deep financial trouble, such as about to lose your home.  Then take only what you need to pay off your delinquent debts, and save the rest for later.  This is especially important as the extra emotions from being behind in your bills paired with the emotions from receiving a lump sum can make for big money mistakes.

Create a List or Budget

In order to decide what to do with the money you first need to understand what you need to do with the funds.  Create a list that has everything on there that you have to do and want to do.  Include everything from buy a new couch, paying extra on house mortgage, pay for college and vacation.

If your lump sum of money comes from the death of a spouse and you need the money to cover expenses you need to create a budget.  This will help you determine how you need to invest the money.

Determine the Best Options

Now review your list of things that you want to do with the money and prioritize them.  Once you have the prioritized list you may go down the list in order of what you want to do with the money.  Remember this is a great time to give yourself a leg up on bigger goals such as retirement and debt reduction.

If the money is needed for living expenses, take the amount you need each month and estimate how long you will need that.  For example if you need the money until the kids are on their own in five years, and need $2,000 a month, then you will need a total of $120,000.  If you have enough to cover this amount, then make sure you put that money in a safe place for access, preferably a money market or savings account.  Even though you may feel you need a bigger return than a savings account remember that you are counting on the money and do not need to take any risks. (More advice on where to save your money)

If you need the money to create income because you don’t have enough then you should consider investments that will accomplish that for you without risking the money.  Work with a reputable investment person for this, as there are many options depending on your needs.  At the same time, you should be evaluate other ways you can cover that expense gap, such as extra income and expense reduction.


You will want to be extra cautious of fraud.  Sadly there are people who would love to relieve you of this money.  Keep these in mind:

  • Unsolicited calls – you need to be extra careful.  Instead of using a planner who cold calls you, get recommendations from trusted friends and family.  Then interview them and check for recommendations from their other clients.
  • Quick Profits – if someone is telling you they can make money quickly for you – run!
  • Guaranteed returns – it is really difficult to guarantee returns, especially high ones.  Most investments don’t come with a guarantee, and the ones that do such as insurance products come with a trade off.  That trade off is usually lower than market returns.
  • High pressure – anyone who wants what is best for you will allow you the time and space to make the right decisions for you.  You do not need to act quickly or miss out on the deal of a lifetime.

Once you decide begin to carry out your plans!  By taking extra time and really assessing what you need to do with the money, you are sure to not make a mistake!

KYD says August 17, 2012

At some point in our lives, we ponder the question, “What would you do if you were given a large sum of money?” We usually answer the question with a bunch of wishful thoughts like traveling around the world or buying a boat. We don’t like thinking about being responsible with a large sum of money. I think this is because many of us never think that we’ll ever run into a windfall of money. However, it could be more feasible than you think. Baby Boomers were a very successful generation, and as they pass away, their children will inherit large sums of money and assets. Many people feel burdened with the responsibility of managing the money, so here is a list of things to do with the money that you won’t regret. We can do loads of things like, paying off debt, fully funding an emergency fund, investing for retirement, setting up College funds for the kids and so on…It basically depends upon the person and her perspectives..

RH says November 19, 2012

Great info & tips!
I also like the definition of what a “lump sum” would be; it doesn’t always have to be millions to be considered significant. Very helpful, thanks!

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