How To Manage A Large Sum Of Money Or Financial Windfall in 11 Steps

Large sum of money

Receiving a sudden financial windfall can come with many mixed emotions. A large sum of money materializes in the form of gifts, bonuses, settlements, inheritances, lottery winnings, and property sales, etc. No matter the source of funds, the financial windfall often brings some level of excitement and overwhelm to the surface.

When handled with care and used wisely, receiving a large sum of money provides a great opportunity to improve your financial situation. So, what would you do if you received a large amount of money? Would you save it, invest it, or treat yourself to a handful of nice things?

1. Don’t make any sudden decisions

Before doing anything with your financial windfall, pause! Take some time to think. Put the money into a savings or money market account, and refrain from touching it during this waiting period. You are more likely to make better decisions about the money if you don’t immediately start spending.

When receiving a large sum of money, there’s a tendency to purchase or do things that you wouldn’t normally be able to do. However, in many situations, rushing causes irrational decisions. It is wise to take several weeks, or even a few months, to think about your options before making plans for the money. Waiting will help you be more rational and more intentional.

2. Consult with professionals to help you manage your large sum of money

During the waiting period, consult with a certified financial planner, a financial advisor, and/or a CPA to determine what to do concerning taxes. A large sum of money usually comes with tax implications that need to be figured out before you make too many plans for the windfall. After working through the tax portion, seek advice from your financial planner to come up with a good plan of action for the rest of the money.

Using your goals as a guide, work with a professional to establish (or update) your financial plan. They will be able to provide advice about the best ways to use the financial windfall to achieve your goals. They can also help you determine which accounts are best to hold any savings that you don’t want to put into investments. 

3. Update or create your estate plan

If you don’t already have an estate plan, now would be a great time to create one. After receiving a large sum of money, your net worth and financial circumstances change. A financial windfall is a major life event.

You should update or create an estate plan to reflect the change. Consult with an estate attorney to make decisions about how your loved ones will be taken care of. Also, determine how your money and other assets will be distributed in the case of an unfortunate event.

4. Save for emergencies

Set aside some of the money to start, or build up, your emergency fund. It’s a good idea to have at least 3 to 6 months of living expenses saved. Receiving a financial windfall can help you fully fund your emergency fund.

Be proactive and save for those “just in case” moments where you may need access to cash quickly. You never know when you may need to tap into your emergency savings after a job loss, for a medical expense, or for another emergency.

5. Pay down or pay off high-interest debt with your large sum of money

Paying off high-interest debt, such as credit card debt, will save you a lot of money over time. If the financial windfall isn’t large enough to pay off all of your debt, paying down your balances is still progress! Not only will you save yourself money by paying less interest, but you will also reduce the amount of time spent repaying your creditors.

Paying off or paying down debt helps your regular monthly cash flow as well. It frees up income that you would normally allocate to debt repayment and allows you to use that cash elsewhere. So if you decide to use part of your financial windfall towards your debt be sure to craft a debt reduction strategy for the rest!

6. Save for a large expense or upcoming goal

If you have a large expense coming up soon, you can use part of your financial windfall to jumpstart your savings for that expense. Or maybe there’s something that you want to purchase in the future that has a hefty price tag.

Acquiring a large sum of money can provide cash to set aside for that as well. Perhaps you are someone who desires homeownership. This would be a great opportunity to get your downpayment and closing costs squared away.

7. Invest your financial windfall

Get help from your certified financial planner with creating an investment plan and setting up your investment accounts. Whether you want to invest for retirement, income, or growth, they can assist you in creating a plan that fits your goals and needs.

Take advantage of increases in value and compounding interest by investing to have money stashed away for the future. Or you can invest in a way that provides income to you now. No matter your goals, please consult with a pro to determine the best way to approach investing for your particular situation.

8. Use your large sum of money to invest in yourself

Your financial windfall can also be used as an opportunity to invest in yourself. You may want to invest in your education. You can use this as a chance to further your studies or make a career transition. Maybe you have a side hustle that you’ve been working on.

A large sum of money may be what you need to take it to the next level. If you have a viable idea for a business, but haven’t had the capital to make it happen, maybe consider using a portion of the windfall to invest in yourself and your endeavors.

9. Do something nice for yourself

Many of the points that we have touched on so far aren’t inherently fun or exciting. There are a lot of “business” types of decisions that you’ll have to make, but don’t forget to treat yourself a little bit. Set aside a small portion of the money to do something nice for yourself. Purchase something that you’ve had your eye on.

Take a nice trip. Take the opportunity to do something fun and exciting that you have been waiting to do or that you otherwise wouldn’t have had the chance to do. While a windfall is a great opportunity to make some financial strides, it also provides the chance to live a little.

11. Donate to a cause you’re passionate about

Help out others and donate to those who are less fortunate. Not only will you be doing a good deed for your community, but this may also lower your tax liability. Be sure to discuss this with your financial planner or financial advisor for specific guidance.

Pick a foundation or organization that you believe in and are passionate about, and bless them with a donation. They will be grateful for your contribution. And you will feel good about using your blessing to help those who are less fortunate.

Manage your large sum of money successfully!

Depending on the size of the windfall, doing a combination of the things listed above may be the best way to make the most of the situation. However, please remember to pause and take some time for your excitement and other feelings to level out.

It is exciting to acquire a financial windfall. It is exciting to think about all of the things that you will be able to do with it and how it will help you improve your financial situation. But without careful thought and consideration, it is also very easy to misuse the money and later regret it.

So if you receive a windfall, consult with financial professionals, be intentional, make progress towards your goals, and don’t forget to have a little bit of fun!

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