What to do with a large sum of money? (And what not to do)

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What to do with a large sum of money?

Have you just-

Won a million-dollar lottery?

Or inherited a large amount of money from your parents?

Or got a big bonus from your employer or a huge tax refund?

Well as exciting as it sounds, it’s not that easy to figure out what to do with such a large sum of money and how to manage it properly.

If you don’t take the right steps to handle this money properly, this fortune of yours won’t last you longer and may create various tax or other issues for you.

In fact, according to research, lottery winners are more likely in three to five years than average Americans.

This is because people don’t make the right financial decisions after receiving this windfall and end up broke after a certain time.

To avoid this, let’s see what to do with a large sum of money and what NOT to do as well so that you can manage this money smartly.

what to do with large sum of money

Key things to keep in mind when you get a large sum of money

Before we jump in and talk about what to do with a large sum of money, let’s first talk about some things that you should know before making any decisions about the large sum of money:

Be intentional:

Anyone would feel on top of the world when they receive a large sum of money they didn’t expect.

But if you start splurging on all your whims without figuring out what to do with the money, you will lose it earlier than you earned it.

If you keep spending this money mindlessly, you will end up spending it all sooner than you expected without even realizing it.

Don’t rush and take a pause:

You have lived without this money till now and trust me you can live without spending it for a few more days or months easily.

Instead of making any hasty decisions, take a break until all excitement about this windfall settles down and then think about what to do with this large sum of money.

This will help you clear your thoughts and make the best decision about how to spend this money.

Talk to an expert:

A financial expert has the right skills and knowledge to give you the best advice about your money.

He or she can review your current financial situation and then create a personalized financial plan for you considering your future financial commitments.

This will ensure that you put this money in the best possible use to build a financially secure life for you and your family.

You might also be interested in learning about:

How to drastically cut expenses

Can’t afford to move out?

Purpose of a budget


What to do with a large sum of money?

Here are few ideas to get the most benefit out of this windfall money:

Pay off the debt

It may not sound exciting but it’s the most ideal thing to do if you have a large sum of money in your bank account.

When you have additional funds in your bank account, you should prioritize paying off your debts so that you can save money on interest.

Start with paying off the debts with the highest rate of interest such as credit card debts or personal loans.

If you still have money left, you can put it towards paying off other debts with lower interest rates.

Save for retirement

Now it’s obvious that you wouldn’t think of saving money for later years of life when you got a large sum of money.

But you need to understand, this money won’t last your lifetime. Instead of spending all the money on current leisure, it’s ideal to save some money and invest it in a retirement fund to ensure secure retirement years.

Also, if you haven’t started a retirement account yet, it’s time you do and starts saving some amount in this account to save up enough for a stable and relaxed retired life.

Make an investment

If you want your money to grow and last longer, you should make your money work for you more smartly by investing it.

This will ensure not going back to your less money phase in a few months or years and continue enjoying the benefits of this large sum of money.

You can get help from a financial planner to set investment goals based on your requirements and then plan your investment portfolio accordingly.

Also, diversify this sum of money based on your risk appetite into stocks, physical assets, and investments in businesses that pay you fixed returns.

If you are a businessman, this is the right time to up your business investments to make sure you get an increased stream of income in the times to come.

Invest in real estate

invest large sum of money in real estate

Real estate is a great way to keep your money growing.

Real estate pays you back in two ways. First, the value of property keeps appreciating and you can make money by selling it in few years down the line.

Secondly, you can make money by renting out the property and build a consistent stream of income.

Hence, real estate is a great way of appreciating the value of your large sum of money in the years to come.

Build an emergency fund

Now, you may be asking why to build an emergency fund when you have already invested money in various assets to fund your later needs?

While your investments may provide enough financial security with regular income, they may not be capable of meeting an unexpected expense or crisis affecting you or your loved ones.

This is because your investment money may not be available to you immediately. Most of the investment options come with a lock-in period or have a certain process to pull money out of them which is not immediate.

Hence, it’s wise to have a separate emergency fund parked in a saving or checking account so that you can access that money without any hassles at the time of crisis.

Save it for a future expense

Known future expenses can often turn into a pain if you don’t plan for them and set up a sinking fund for them in advance.

It’s recommended to plan and make a provision for any future expenses that you know about well advance in time to avoid any financial burden.

So, if you have a large sum of money, why not put that money towards sinking funds to cover the cost of these known future expenses.

These can be expenses like kid’s college fund, house down payment, house remodeling expenses, and so on.

Splurge and treat yourself

While, it’s essential to plan, save and invest, you shouldn’t stay completely away from pampering yourself.

After all, this money needs to be used to help you enjoy the present without being too stressed.

So, plan a vacation, enjoy a fancy dinner date, or just a casual weekend of club hoping to keep yourself entertained with this sum of money.

You could also use some money to buy that one thing you had your eye on for a long period. 

However, while doing this, it’s best to not lose sight of your investment and saving goals to ensure that all your money is not solely spent on leisure.

Mix and match

You don’t just have to SPEND ALL your money or SAVE ALL your money for the future.

You need to figure out the right balance between investment, debt repayment, savings, and expenditure.

This will help you ENJOY spending your money without worrying about wasting it.

As discussed earlier, you can take help from a professional financial expert to make the right plan for the large sum of money you have got.

You might also be interested in learning about:

11 Free Blank Budget Worksheet Printable to Take Control of Your Finances

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30+ Dirt Cheap Meals (That You Can Make For $5 or Less)

What not to do with a large sum of money?

Now that we have discussed what to do with a large sum of money, let’s look at what not to do with it:

Don’t tell the world

While it’s exciting to have a large sum of money but it’s not best to share this news with a lot of people.

It should only be shared with people who are very close to you.

If you share about your newest fortune with everyone, it’s likely possible that some of your old cousins or friends might pop up to seek financial support or expect you to invest in their businesses.

Also, if a lot of people know that you have money. it increases the chances of theft as well.

what not to do with large sum of money (1)

Don’t radically change your life

Another important thing is to ensure your lifestyle isn’t changed too drastically.

Remember, this is a one-time gain. Even, if you invest in the right funds, this sum of money in your account isn’t going to be as huge forever as it’s right now.

Hence, sustaining a high-profile lifestyle you have built on this one-time income could become a nightmare and you may return to square one sooner than you thought of.

A huge lifestyle change can alarm relatives and friends and trigger the chain of problems mentioned above.

Don’t forget about taxes

Whether it’s a gift or an inheritance or you won this large sum of money at a casino or in a lottery, it’s going to be taxable in one or the other form.

Even if the amount is not taxable immediately due to certain provisions of the law, but once you start investing this money, the income on investments may push you into the taxable income bracket.

Hence, keep taxes in mind before you make any decision about this large sum of money. If you’re unsure about tax liability, seek help from a CPA or tax to manage tax expenses effectively.

Where should I put a large sum of money?

While the best thing to do with a large sum of money is to invest so that it can grow in long term and generate wealth for you.

But you don’t want to invest all of your money and rather keep some of it in the bank account so that it’s easily accessible.

You need to keep safety in mind before choosing an account. Ensure the bank you choose is FDIC recognized to keep your money safe.

You can put your money either in a:

High yield saving account

If you want to grow your money and have instant access to it at the same time, the high yield savings account is a good option for you.

It usually yields 1 percent APY in comparison to 0.01 percent APY that you earn with a checking account.

You can find some great sign up bonus on opening these savings account, but you may have to maintain a minimum balance to earn higher returns.

Certificate of deposit (CD)

With a CD, you will have to lock in your money for a certain amount of time. You will have to pay a certain penalty if you want to withdraw funds earlier.

The rate of interest on CDs keeps fluctuating but you can sometimes score a higher yield which can help you better returns than a savings account.

Money market account

These accounts yield a higher return than a savings account or certificate of deposit but there are restrictions on the number of debit card transactions and other withdrawals.

If you don’t want to restrict your money in a long-term CD, you may consider this account.

Checking account

Checking account is the most convenient in comparison to other options but they provide the lowest returns of all options.

Hence, they are ideal for your everyday use, but they are not the best option for savings and grow your money.

Treasury bills

Also, know as T-Bills, they are the US Government debt that offers better returns than savings and checking accounts.

They are issued by the federal government hence, there is no risk of losing the principal. They are usually traded on the secondary market and can be easily bought and sold with the help of brokers or banks.

Stocks, bond and gold

These are the high-risk and high-return investment options.

You may earn a high return with these investments, but they also have underlying risks due to the ups and downs of the market.

So, it’s recommended to have a balanced investment portfolio with low, moderate and high risks investments based on your risk tolerance.

Final thoughts on what to do with large sum of money (and what not to do)

Having this sudden large sum of money in your bank account is a huge test of your impulse.

Even though you are good while making money decisions, you may go overboard with spending due to the excitement of newfound wealth.

So, it’s best to slow down and use the tips mentioned above to make the right decisions that you won’t regret later.

What to do with large sum of money

What to do with a large sum of money?

Anika is a CPA and founder of What Anika Says. She shares simple and actionable frugal living, money management and money-saving tips to live a debt-free financially independent life. She has been featured on popular websites like Bankrate, Forbes, Mint ,and Authority Magazine. Byline: MSN