Coming into a large sum of money, whether through an inheritance, settlement, severance, life insurance payout, or other lump sum, can no doubt be exciting. Your mind is probably racing with ideas on how to spend it – a new car or a trip of a lifetime, perhaps. Before you start spending, consider what else you could do with the money that may lead to long-term wealth and financial success instead.
To use a large sum of money wisely, strategic planning is critical. Don’t spend your newfound wealth all at once. Instead, consider these carefully considered ideas for financial management.
Idea #1: Emergency Fund
Everyone with the means to save should have an emergency fund. When you receive a large sum, setting some aside in an emergency fund for a rainy day is a good idea. This is not to say your money should sit in a savings account.
Rather, put 3 to 6 months of expenses into a high-interest savings account for the future, just in case. You never know when or why you may need it down the road.
Idea #2: Pay Down Debt
Now that you have your rainy day fund, you should focus on your debt. Depending on the sum you received, you may be able to pay off all of your debt, including your credit card payments, loan and line of credit payments, car payments, and mortgages.
If your large sum is not large enough to pay off all debts, start with those with the highest interest rates, such as your credit card and car payments. Paying these off quickly will get you in better financial shape in the long term, as the other debts will be easier to maintain.
Idea #3: Family Office Consultation
As you can see, there’s a lot you can and should do when you come into a large sum of money. This situation can be financially stressful. After all, you want to ensure you make the right investments and take all financial considerations into account. Unfortunately, many who come into newfound wealth mismanage their money and often lose it. You don’t want to become one of them.
Request a family office consultation to talk to a financial expert. You’ll receive advanced, customized, and tax-optimized wealth management services you can trust. From estate planning and investments to business ventures and tax optimizations, you can get the financial advice and support you need to make the right decisions and choose the right financial paths.
Idea #4: Invest in Real Estate
Many people who receive a large sum of money invest in real estate. This is a great option because it not only provides potential appreciation but passive income as well. When you invest in real estate, you can put your money to work for you, so it can continue to make more money for you over time.
When investing in real estate, you can choose between rental properties, commercial real estate, and real estate investment trusts (REITs). Your final decision will ultimately depend on your investment strategy and appetite for risk. One thing is for sure: Real estate is almost always a great investment.
Idea #5: Diversified Investment Portfolio
Once your immediate financial stresses have been eliminated, you can start considering how to snowball your large sum into more money in the years and decades. Creating a diversified investment portfolio with stocks, bonds, and other asset classes can ensure your newfound money helps you achieve your financial goals for the rest of your life.
When investing, you’ll want to consider your goals, risk tolerance, and time horizon.
Idea #6: Education
Ever dreamed of becoming a pilot or going to medical school? Training overseas to become a yoga teacher? With your newfound wealth, you can open yourself to new educational and development opportunities that may have been out of reach.
Investing in your education and skills development can help you feel more fulfilled, a valuable investment when your hopes and dreams are considered.
Idea #7: Retirement Planning
Today’s large sum of money can set you up for a comfortable retirement. As with a diversified investment portfolio, you could put aside some of your new wealth to secure your financial future. You’ll want to explore tax-advantaged options here, such as RRSPs.
Idea #8: Business Venture
If you’ve ever dreamed of opening your own bakery or clothing store, now is the time to seriously consider giving it a solid shot. Investing in a venture you choose can lead to a rewarding journey as an entrepreneur. Although this can be a riskier option for some, it can also come with significant returns.
Idea #9: Legacy Planning
If you’ve come across a very large sum of money – more than it would take to spend in your lifetime – then legacy planning and estate management is wise.
You’ll want to think about where you want this newfound wealth to go after you’re gone, whether to your family, to charitable causes, or elsewhere. You’ll have to consider a will, trusts, and other structures to pass on your wealth according to your wishes.
Idea #10: Charitable Giving
Many people who receive a large sum share some of it with a charity that aligns with their values. Depending on the amount you’ve received, you could consider contributing to an existing organization near and dear to your heart or creating a charitable foundation.
Just like an investment in your education and skills, giving away some of your newfound wealth to charitable causes can provide you with a sense of fulfillment and purpose.
