What to do when you come into money suddenly (inheritance, business or investing windfall)

Ben Brett 10 July 2024

In my role as a financial planner, I’ve come across a fair few people who have come into a large amount of money.

The most common is a large inheritance but from time to time I’ve also seen business sales or investing/lottery windfalls.

In this article, I’ll outline the four steps you should follow when you come into money suddenly.

Step 1: Slow Down!

Particularly with an inheritance, this can be an incredibly emotional time.

When our emotions are heightened and everything seems uncertain, it’s human nature to try and bring certainty to your world. The problem is if you start making quick decisions with money, you may make mistakes which are costly to undo.

As a general rule, I would suggest slowing down and potentially just parking the money in your offset account or a high interest bank account in the short-term.

Whilst you may worry that you are not getting the investment value you could be getting from the money, the cost of getting something wrong may far outweigh the benefits.

Step 2: Think about whether this ‘speeds up your plans’ or ‘changes your plans’

Whether you’ve ever formalised it or not, we are all working to a financial plan.

You may have bought a house and have a plan to upgrade. You have an idea of when you want to retire and how you’ll go about it.

A big windfall of money can completely change this but you need to ask yourself if this ‘speeds up your plans’ or ‘changes your plans’.

An example of speeding up your plans is this may allow you to pay off your house earlier. You may then start working towards retirement earlier. This is essentially your existing plan but sped up.

If however you’re ‘changing your plan’, you may decide you want to upgrade to a completely different house or start a business, or another major change in your life.

Both can be good options, but it’s important to understand what one you’re doing. If you’re coming up with a new financial plan, it’s important it make sense relatively to how much money you’ve received.

If you go out and buy a super expensive house with the money but have just as big a mortgage as you did previously, you’ll obviously need to continue working just as long. This could be fine but it’s important to acknowledge it to avoid disappointment.

Step 3: Learn the new rules of money

More money comes with more responsibility.

When you don’t have a lot of money, you can get away with not knowing things about tax structures or investment risks. But once you have money, you really need to learn these things otherwise the consequences can be dire.

Now is a great time to get financial advice to understand how best to manage the money to get the most of it. Remember, even small mistakes can add up to big dollars now you have more.

Step 4: Watch our for lifestyle inflation you can’t keep up with

This is a big risk I’ve seen many times with people who receive money early on.

They will usually use the money to buy a house in a nice neighbourhood.

Their kids become friends with the neighbourhood kids who are all going to the high-cost private school so they put their kids in the same private school.

Their friends drive nice cars so they drive nice cars.

Their friends go on international holidays so they go on international holidays.

The problem here is that their friends salaries are significantly higher than theirs and they start struggling to keep up.

Suddenly they find themselves trapped in a lifestyle they can’t afford with no obvious way to get out of it.

This is why step 2 is so important because if you are going to change your plans, you need to think about what this looks like in the future.

If you have significant money and can inflate your lifestyle, then you can do it. But if you have just enough to get started but not enough to continue, you may need to reconsider.

If you’ve come into a large amount of money and want to discuss with an expert how best to apply it, then please reach out. We work with clients all over Australia and would love to hear from you.

About the author: Ben Brett

Ben Brett owns and operates Bounce Financial with his wife, Cara. Having started his career as a Corporate Lawyer, Ben has always had a passion for helping make the complex things simple. Follow Ben on LinkedIn at www.linkedin.com/in/ben-brett/