What to do with a large sum of money?
If you ever come across a point in your life where financial blessings are abundant, what will you do?
Let's say you suddenly have a large sum of windfall money from winning the lottery, being awarded a handsome bonus and commissions, or inherited amass of fortune.
What about a handful of tax-refund? Will you spend it all on a large purchase and finally buy that designer bag you've been eyeing forever?
Or will you keep it safe and sound hidden in your attic's treasure box?
Before you decide what to do with a large sum of money, let this article help you and find out what you should do with your newly found wealth, how to manage it, and where you can safely park your money.
Read on!
What to do with a large sum of money?
First of all, before you splurge your money with frivolous expenses, take a moment to pause, wait, and think.
Take a breather first and let your mind process the fortune you've been given. If I were you, I would shot this moment for gratitude and of course, think thoroughly and wait before making any rash decisions.
Didn't they tell us, “don't rush into things,” or the all more familiar, “good things happen to those who wait”?
Press the pause button first and wait before you make a financial decision. It may get above your head and before you know it, your mind will wander with wild imaginations and scenarios of lavish purchases or extravagant lifestyle; keep it in your pants dear!
Furthermore, financial experts suggest to wait at least six months or even two years before concluding a financial decision.
Although it seems too lengthy or, for some, absurd, personally, I think six months is enough. I might die of anticipation and excitement if I wait too much longer!
Keep in mind that significant earnings in such a short period, especially windfalls who magically land in your lap and you've got zero effort on your part, can ultimately cloud a person's judgment.
It can also lead to irrational financial decision-making. Think about celebrity bankrupts and one-day millionaires. Their stats are highly staggering over the last decade.
Do you want to become one of those unfortunate lottery winners? Don't aim for a one-day millionaire lifestyle; get it for life!
So, what to do with a large sum of money, you may ask? Here's another thing you can do.
Talk to financial experts. In choosing a financial advisor, make sure that it is someone you and your family can trust and rely on.
Who else can help you in financial affairs other than the experts? These financial experts/advisors will help you make an informed decision about what to do with a large sum of money that you suddenly or unexpectedly had possessed on.
Moreover, they can help you plan how to achieve your financial goals and set a road map to your financial success. Most likely, your mind will be all over the place.
Therefore, a team of financial experts and professionals can be your accountability buddy and will keep you grounded.
However, some people don't want other people to tell them what's the best thing to do with their money. Regardless, one shall always seek expert advice and insights for help regarding one's financial matters.
Where should I put a large sum of money?
Now that you have an idea of what to do with a large sum of money before you actually go out there and squander it, the next question you should have in mind is where to put it?
Keeping it in your grandma's safe box is the least you can do. Here's where you should let your money rest, whether hard-earned or windfall.
High-yield savings account
Putting your money in a high-yield savings account will not only keep it safe but will also help your cash bear a good amount of interest.
You can then use the money you put in a high-yield savings account to keep funds for emergencies, large expenses, or short-term savings goals.
The only difference between a regular savings account versus a high-yield one is that the later can earn you ten times more on your money.
Better to research among the best banks that offer good deals of high-yield savings accounts in the market today to keep your cash in. Depending on the bank and their proposed rates, you can earn some money by simply putting it in the right place.
This leads me to the next point.
Certificate of Deposit (CDs)
CDs (in other terms, time deposit) are another way to ensure your money is safeguarded. Unlike a regular savings account, with Certificate of Deposits or CDs, you cannot touch your fund until its maturity age. Essentially, your fund is lock up in a certain period.
It can be within a few months or years but the longer it sits in the bank, the higher the returns.
Now, for those unfamiliar with CD terms, you might wonder. Who are crazy enough to lock up their money and choose not to access it for too long?
Well, think about CDs as a fine wine. They get better in time or as they mature. However, remember to keep only an amount of money you will not need or use for a long time.
Precious Metals and Gold
If you've got an eye for fine jewelry and other precious metals or gold, why not invest in these earth stones?
During times of war or extreme crisis, when the financial market ceases to function, money might be an invaluable tool and many people would resort to these types of resources.
Precious metals such as gold, silver, and copper are a great investment tool as they will hold their value plus the potential to appreciate highly.
Hence, why not trade in your cash for blocks of gold? On the other hand, don't forget to seek further investment options such as ETFs, stocks, and bonds too!
Build and boost an emergency fund
With a large windfall at your disposal, it can be a great way to build and boost your emergency fund.
An emergency fund is a money you set aside for unexpected expenses or circumstances. It's like paying insurance but all the money stays with you.
Only 4 in 10 Americans can cover a $1,000 emergency without going having to go into debt. So what better way to spend your large amount of extra money? You can build your emergency fund and be prepared for life's surprises.
Financial experts advise you to keep at least six months worth of your basic living expenses (housing, food, utilities, insurance).
Above all, an emergency fund helps you break the paycheck to paycheck cycle and remove the need to take on more credit card debt.
Aside from that, it reduces anxiety about money and increases your financial security. It can more likely give you room to focus on funding your future financial goals.
Pay off debt
Paying off your debt might not be the most fun to do with your money, but it's the wisest thing you can do. Not to mention the liberating effect it can bring you.
If you have racked a ton of student debt or credit card debt, now is the time to crush it ultimately.
You can start paying down debt with the highest interest rate first and later with the principal amount or vice versa.
You can learn more about debt snowball and avalanche here.
Plan for retirement
What to do with a large sum of money? Well, it's time to plan for your retirement plus any long-term financial plans!
You may be uninterested in this part because you might think to yourself that you're too young to be stressing about all this stuff, etc. But, give yourself a favor today and let your future self thank you.
Here's what you can do:
- Open up a traditional or ROTH IRA account.
- Increase your 401(k)retirement contribution
- Keep a long-term mindset horizon.
You can YOLO all the way you want or choose this moment to think about how and where you want to be in the next five or ten years in terms of financial position.
Save for considerable large expense
If you are blessed with a large amount of money, you can use the opportunity to save a portion of it for your expected large expense.
Are you planning for a mortgage downpayment? Buying an electronic device? Moving into a new city?
The best way not to put your money to waste is to create a spending plan. That way, you'll know how much money you need to allocate for specific purchases.
Update your estate plan, or will
It may haven't crossed your mind for quite some time now, or maybe you think you're too young.
However, if you're already forward-thinking about your retirement plans, why not take it one step further by planning or updating your estate plan or inheritance will?
Doing so will be an excellent opportunity to choose where money will go in case of unforeseen and unprecedented events. Besides, if you've got a significant change in net worth, putting it in an organized manner will benefit you and your heirs through less stress and worry-free transition.
Mix and match
With all the options mentioned above, who says you get to do just one?
You can mix and match all these options- like putting your eggs in different baskets or diversification.
Besides, it’s your money, and you get to decide what you want to do with it.
Depending on how much money you come into, doing a mix of savings, paying off debts, and investing is the best choice you could make financially.
What to do with $100,000 cash?
Assuming you have zero debts in your name and you have extra $100,000 right now, what do you think you will do?
I say to invest it and let your money grow, thereby making more money for you.
Invest in real estate
If you have the money, stop renting and start owning now! You can use this extra cash as a downpayment to your dream home.
Moreover, if you want to get serious in real estate, you can start acquiring properties and rent them at Airbnb. You not only benefit from value appreciation, but you also get to earn a passive income.
Park money on stocks, bonds, or ETFs
Investing in stock market? Isn't it too risky?
Well, yeah, for the most part, due to its volatile nature, but in the long-term horizon, it will do you no harm. But, make sure that you know what you're dealing with when you decide to invest in any investment vehicle.
Remember, buying a stock without knowing anything about the company is like jumping off a cliff and hoping you fly. Do your research first and assess how the company is making money, the price per share, and how risky and volatile the company is.
Since buying a stock means buying ownership in a company, it makes sense to know what it does and profit. We know low risk= low return potential and high risk= high return potential.
Another investment vehicle is the ETF or Exchange-Traded Funds. It is a fund that contains several assets such as stocks, bonds, commodities, real estate, and currencies.
Investing in ETFs spreads your risk across many assets and helps diversify your portfolio without doing tons of research quickly.
Remember, consistent contribution to your portfolio with a long-term outlook will get you great returns. So stop watching from the sidelines and start investing ASAP. It's easy!
Tip: Choose a brokerage or robo-advisor to help you jumpstart into investing!
Treat yourself
As a young person, your high-risk tolerance shouldn't only be for the stock market; take a risk on yourself too. You're your best bet!
With large money at bay, this could be the time to invest in your skills and knowledge. Go ahead and enroll in that online course, book that vacation ticket already, go buy yourself a coffee. Treat yourself because you deserve it.
How do you manage large sums of money?
Hopefully, by now, you know what to do with a large sum of money and where to keep it. Likewise, you should know how to manage it to not end up like a broke millionaire.
You know, it's not only how much amount you made, your income, or amount of windfall money you suddenly own. It's also the way how you handle it and use to build a wealth.
Here's what to tick in your checklist.
Don't radically change your life
This is so true. Just because you have tons of money now doesn't mean you should have lifestyle inflation too.
More importantly, resist the urge to:
- Quit your full-time day job
- Buy a yacht or a new car
- Upgrade your mobile device, home, or apartment
The best thing to do is to more or less keep your lifestyle and spending habits the same to avoid racking up any new and unnecessary expenditures.
Instead, take this unique opportunity to build your wealth slowly. Did you know that 70% of affluent families lose their wealth by the 2nd generation and a stunning 90% up to third-generation?
That is why, as early as now, try to plan your generational wealth. In doing so, you will not end up being on the list of one-day millionaires or go back to the broken paycheck to paycheck cycle.
Again, lifestyle inflation will keep you at the same level or take you lower, even with more money,
Hello, taxes!
Of course, Uncle Sam will always have to take his share. Depending on how you come up with your money, most of it will require tax obligations, so you shouldn't forget about that.
Prizes from lottery or casinos are taxable. The same with inheritance money, but it varies.
It is much better if you consult with an expert lawyer or accountant so that you wouldn't be surprised by unwelcome tax surprises.
Keep it to yourself
What we mean by this one is to avoid shouting it from the rooftops. If you're the type who tends to overshare, then it might be a challenge.
First of all, if you spread the news that you have a large amount of money, not long after that, there'll be distant relatives who will visit you and try to catch up with you, hoping to get a pour from your wealth.
Be careful to those who claim a part of your family but then end up trying to lure you into some investment scams, etc. Worst, evil people who'll plot murder on you or do something stupid and illegal, we don't want that to happen.
Therefore, keep it in your pants baby! Choose who to trust and share your wealth with, and of course, plan and update your estate plan.
Value-based budgeting
With great money comes great responsibility. Just because you can afford those things now doesn't mean you should spend all you want anytime and anywhere!
You should still live on a budget! There are so many ways to do budgeting. You can make the 50/30/20 rule, envelope budgeting, among the few.
However, you can also opt for value-based budgeting. It means spending more on what you truly love.
In other words, you prioritize expenses you value the most over anything else. You can call it conscious spending. It's easier to save money for what you care about the most than just randomly budgeting.
For instance, I intentionally spend on books, online courses, providing for my family, and connecting with my friends. That will always get more money in my budget over phone upgrades and shopping for excessive wardrobes.
Give
More importantly, if you're feeling generous you can also donate your wealth to any trusted charities or foundation. Giving back to the less fortunate is an investment to others and a choice that will enrich your soul.
Final Thoughts
By now, you should know that your financial decision will decide whether you will sink or swim for the rest of your life.
Take those many rich athletes, celebrities, and stars who go broke when they retire. I am not judging them perse, but know that if you were given a vast wealth, be a good steward for it.
More money doesn't mean you should get more things, you should learn to manage them wisely.
In conclusion, personal finance is a personal thing. You decide what to do with your money.
I hope this article helps you sort what to do with a large sum of money you land overnight or unexpectedly.
Suppose you want to learn more about budgeting and making your money grow and work for you; head over to different articles we share here on the blog. You can also download our free e-book to teach you everything you need to know about investing.
We hope to see here again next time! Please share your thoughts below; let's talk about money-ish stuff!
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