I’m sure you’ve daydreamed at some point about how life would change if a large lump sum payment of money came your way. Say like a million dollars? We’ve all played this game and fantasized about all the good we could do for ourselves and others with that much money.
For most people, this will not happen. The better likelihood is that it will take many years of hard work accompanied by traditional saving and investing to become wealthy. That’s how most of us will reach our financial milestones.
However, people’s lives can change quickly because they receive a lump sum payment of money worth six or seven figures. How could this happen? Well, here is how and it’s not a get-rich-quick scheme.
Ways to Receive a Lump Sum Payment of Money
The following are ways a person could receive a lump sum payment of money:
An Inheritance. A person receives money from a loved one or friend’s will.
Life Insurance Payout. Another death issue where an individual passes away and consequently the remaining spouse or beneficiary receives the death benefits from a life insurance policy.
Lottery. This is a complete long shot for sure but it does happen.
Legal Settlements. Injuries from an accident or a lawsuit could produce large cash payouts when the court rules in your favor.
Career Realization. Professions where this might occur could be the professional athlete who just signed his or her first contract and the actor/musician who unexpectedly bursts on the scene.
A Business Deal. This could be a website or small business you start that gets bought out by a large company.
All these events would be life altering. They have the potential to change a family for multiple generations. They also have the potential to be a devastating curse (just google “lottery winners going broke” to see how).
Handling a Lump Sum Payment of Money
If you find yourself in this situation, you’ve got some big decisions to make. Here are some helpful suggestions to guide your decision making process:
1. Wait (maybe as much as six months). First of all, NEVER feel or be pressured into any quick decisions. There is absolutely no rush to do anything. You have the large lump sum payment. Deposit it in multiple bank accounts if you have to and let it sit for bit.
It’s important to evaluate your circumstances and give the change time to sink in. Life is going to be different and it takes time to emotionally prepare for what’s ahead.
2. Avoid immediate spending. With the sudden wealth will come the immediate desire to spend. You will want everything! A person may be able to fight against this urge for a bit. However, if you had a predisposition to spend excessively before, then receiving this money will not help the issue – it will only worsen it.
In addition, some of the above scenarios may require time for emotions to heal. Don’t medicate the pain of loss by spending.
3. Consult a financial adviser. With numbers this large, consulting a professional would be a wise move even for someone disciplined in saving and investing. You may encounter issues you haven’t considered in regards to retirement, paying off debt or estate planning.
In addition, a professional would have more knowledge of tax related issues to consider and the best ways to set up a portfolio for long-term sustainability. It will be worth the money to pay for a tax professional’s advice and service in this matter.
As you look for help, do the necessary due diligence to find a financial adviser that is qualified and is a good fit for you.
4. Watch out for friends or loved ones. It may be that your windfall is not a secret. Perhaps friends and family members are aware of the lump sum payment that has come your way. Consequently, long lost friends you haven’t seen in 20 years may suddenly look you up, seeking a handout or financing for that can’t miss business deal. Be on your guard.
If you don’t think this could happen, check out the ESPN 30 for 30 documentary “Broke”. This documentary detailed the lives and misfortunes of many professional athletes who became instant multimillionaires. They struggled with telling friends “No” and felt compelled to give money to family members who had helped them along the way. Many of them lost millions of dollars in the process.
5. Give. With this much wealth comes a greater responsibility to give to others. The great businessman and philanthropist Andrew Carnegie once said, “Surplus wealth is a sacred trust which its possessor is bound to administer in his lifetime for the good of the community.” Look to give some money away but not immediately (see #1) or recklessly (see #4).
So think of ways to eventually share part of this windfall and impact your church, community or other cause that you hold dear. You may even want to develop a giving plan to help you wisely do this.
In conclusion, receiving a lump sum of money will be a life changing moment. Proceed slowly and cautiously on the path ahead so the life changing moment becomes a long-term financial blessing.
Questions for Discussion: Do you know anyone who received a large lump sum payment of money? If so, did it impact their life for good or bad? Is there other advice would you give to someone who received a large payout of some kind? What is the first thing you would buy for yourself if this happened? How would you allocate the rest of the money?