What To Do with a Lump Sum of Money

Receiving a financial windfall can be thrilling and overwhelming at the same time. Whether it comes from an inheritance, winning the lottery, or cashing out stock options, suddenly having a lump sum of money available to you is an exciting proposition. But it doesn’t mean your work is done – in fact your next steps are among the most important.

Without a sound plan, you could find yourself in financial distress down the line. A study conducted by Jay Zagorsky, a research scientist at The Ohio State University, found that 34.9% of inheritors either lost or saw no change in wealth after receiving an inheritance.

However, before discussing what to do with a lump sum of money, let’s look at what you shouldn’t do.

What to Avoid in a Financial Windfall

Emotion can be your biggest enemy after receiving an unexpected lump sum of money because it leads to impulsivity and can cloud your judgment. Without the proper guidance, your financial windfall has the potential to become a financial downfall. Here are a few common traps to avoid:

• Extravagant Purchases – The desire to make extravagant purchases after coming into a large amount of money is natural, but it holds the potential for a spiral of unsustainable luxury. It is important to remember that money is finite, and if you don’t use it wisely, it can quickly disappear.

• Careless Investments – You may want to grow your newfound wealth, but failing to do your due diligence and making poor investments, such as high-risk stock market plays, can quickly destroy your capital.

• Helping Others – While it is admirable to help your friends and family with purchases or paying off their debt, you must secure your own financial future first. Setting yourself up for growth will put you in a position to help later down the road.
• Storing It All in Savings – Stashing money away for a rainy day might seem like a safe move, but keeping a large lump sum of money in a single savings account can be detrimental. For example, if the bank fails, only the first $250,000 of your balance is insured by the FDIC.

Getting the Most Out of Your Lump Sum of Money

So, what should you do when presented with a financial windfall? Here are some tips to get the most out of your lump sum of money:

• Take Your Time – It may be tempting to immediately start spending your newfound money, but patient and wise decision making is key. Take some time to reflect on the situation and develop a plan.

• Be Fiscally Responsible – When deciding what to do with a financial windfall, it is important to think about the future and develop a budget for yourself. Being fiscally responsible means making sure that you understand all expenses associated with any investments before taking them on.

• Seek Financial Advice – Consulting an experienced financial advisor can help you make sound financial decisions and create a financial plan that meets both your short- and long-term goals. A financial advisor will also be able to give you advice on how to tax-efficiently invest and grow your capital into something sustainable.

Guidance From a Colorado Wealth Management Company

A financial windfall is exciting, and receiving a lump sum of money brings opportunity—for growth and failure. If you spend carelessly or rush into investments trying to turn a quick profit, your nest egg could crack wide open. Making wise decisions requires patience, tact, and ideally some financial guidance from a wealth management professional with extensive experience in investing a lump sum.

If you are unsure of what to do with a lump sum of money, speaking with a Morgan Rosel CERTIFIED FINANCIAL PLANNER™ will help light the path. We are fiduciary advisors, which means that we make every decision with your best interests at top-of-mind. If you need help taking the stress and uncertainty out of wealth management, we would love to talk to you.