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“I’m Rich!” – How to Handle a Lump Sum Payment of Money

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.

lump sum paymentBut let’s be completely honest. For most people, this will not happen. The better likelihood of a person becoming rich is that it will take many years of hard work accompanied by traditional saving and investing. That’s the more likely path to wealth and the financial freedom that comes with it.

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, there are more ways than you might think. So, Ill detail a few ways here that are not get-rich-quick schemes. Then we will look at what you should do if ever faced with this situation.

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 could receive a lump sum payment of money through an inheritance from a loved on or by being named as a beneficiary in a friends will. 

Life Insurance Payout

Here we have another possibility surrounding someone’s death. In this scenario, an individual passes away and the remaining spouse, child or other beneficiary receives the death benefits from a life insurance policy. This type of payout could easily result in a 6 to 7 figure number received, as the bare minimum amount of life insurance suggested to have is 10 times your annual salary. 

Related Content: Life Insurance: The Most Important Things You Need to Know

The Lottery

Obviously, this is a complete long shot for sure. The odds of winning the lottery are so small, it’s hardly worth mentioning here. However, with the prevalence of lotteries around, it does happen.

Awarded a Legal Settlement

A large lump sum payout could come from a legal settlement. This could be due to injuries sustained in a car accident, workplace lawsuit or perhaps a civil case where the court ruled in your favor and you were awarded economic damages.

Career Realization

Again, you may not think this a path to getting a lump sum of money all at once. Usually wealth is built a little bit at a time through your career.

But think of professions where an amateur becomes a professional overnight, like a college athlete signing his or her first professional contract. Or perhaps the up and coming actor or musician who unexpectedly bursts on the scene. You could even lump into this category a business professional who becomes head of the company overnight and receives a large signing bonus. 

A Mega-Business Deal

This probably happens more than we know. This could be a website or small business you start that gets bought out by a large company. Even if you had a net worth of $1 million and sold your company for $20 million that would put you in another category of wealth. 

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. If you don’t think so, simply google “lottery winners going broke” to see how).

Handling a Lump Sum Payment of Money

So, if you find yourself in this situation, you’ve got some big decisions to make. This is a lot of money to handle, especially if you weren’t prepared for it. It can also be a challenge if you have practiced poor money management in the past.

With that in mind, here are some helpful suggestions to guide your next steps:

1. Wait (maybe as much as six months)

Foremost 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. It isn’t going anywhere. 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 and you won’t be able to help it. You now have access to more money than you ever dreamed of. There will absolutely be an urge to get “that thing” you’ve always wanted.

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 scenarios mentioned above may require time for emotions to heal (like in the death of a loved one). Don’t medicate the pain of your loss by spending money. 

Related Content: How to Enjoy a Life of Guilt-Free 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. Not everyone will be. Don’t go with the first one that crosses your path. And think twice before going with someone you know, like a friend for family member. It doesn’t have to but the professional relationship may impact the personal relationship with that person in ways you hadn’t anticipated.

Related Content: 5 Warning Signs When Choosing a Financial Adviser

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). Wait until you are emotionally ready (see #2) and have received some good advice on how this impacts your financial status as a whole (see #3).

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.

Related Content: How to Develop a Purposeful Plan for Giving Away Money


In conclusion, receiving a lump sum of money will be a life changing moment. Handled well, it has the potential to set your family up for generations. So proceed slowly and cautiously so the life changing moment becomes a long-term financial blessing.

Leave a Comment or Answer a Question Below: 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?

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  1. I think waiting can be good advice if you don’t know where that money is going to go. But not if you’re going to invest the money eventually. Generally, the market uptrends, so time out of the market is money lost. We should already have a general investment strategy which allocates any new wealth among different asset classes, according to risk tolerance. If money is going to be invested, I would counsel someone to invest it immediately across broad-market ETFs or mutual funds, according to their target asset allocation.

  2. Waiting and not rushing into anything is the best advice, I think! You’d want to make sure you are putting the money where is best and that requires time and looking into options. Thought-provoking post!

  3. I think waiting is a huge element, one reason being that you might have other emotions going on if you lost someone close that resulted in receiving the money.

    • “…waiting…” That’s probably the single best piece of advice anyone could receive when this happens. You are 100% right…there is so much emotion, either positive or negative the person might be dealing with. And we all know that we don’t make good decisions when we are emotional.

  4. Catherine says

    Waiting is SUCH a huge importance. Emotions and money usually don’t go well together!

  5. The Happy Homeowner says

    Great post. I have a mini windfall coming my way once I sell my condo, and I’ve already decided to bank the six-figure check and take some time to figure out next steps. I want to make sure I’m making healthy, informed decisions and not reacting from the emotions of having so much in the bank.

    • Congrats…that’s cool! I was hoping someone might be able to comment on this happening to them recently. I think you are taking the right step in being patient instead of reacting.

  6. Well, I’m not sure I’m the person to be giving advice on this topic because I’ve never had a big windfall of money, but I would say pay off your debts and put it into income-producing assets. Making it last long-term – and potentially providing you with income on top of it – is the best way to go about using a large lump sum of money.

    I think that people who build businesses and then sell them for a sizable sum are a good example of people who have received a lump sum payment. Making this money last, especially since you no longer have your business generating income for you, is extremely important.

    • I think using a large windfall to generate long-term income is a great step. There are several places that could happen including dividend stocks/mutual funds or rental real estate.

  7. I definitely agree that talking to a professional would be a good idea, but I think you need to be careful about what kind of professional you talk to. There are lots of “advisors” out there who are really just looking to sell you something so they can collect a commission. You even need to be careful with fee-only advisors. Probably going with someone willing to work with you on a one-time, flat fee basis would be a good way to start. If you feel like you still need more after that, you can always seek it out.

    • “There are lots of “advisors” out there who are really just looking to sell you something so they can collect a commission.” I know. I’ve run into a few of these in my lifetime and it’s pretty obvious that is what they are doing. Some use scare tactics to get you to buy all kinds of insurance you don’t really need. Have to be careful here.

  8. It’s one of my favorite games – dreaming about a sudden windfall that erases all my problems. But that also assumes I don’t make the mistakes that so many people do make when they get a windfall. Waiting is important because we’d probably regret our initial spending choices. 🙂 It’s not easy but taking even a few weeks to prioritize things you want and what you need to save is important. And sadly, dealing with family and friends and acquaintances who suddenly need your help would be hard. It’s not easy for me to say “no” but I also don’t like being taking advantage of either.

    • Windfalls only bring other types of problems. 🙂 I know we mostly brush off the rich as not having need of anything. But being rich is not easy either, or so I’ve heard.

  9. I totally agree with your first point: Wait. That is so important. Don’t rush into anything. Instead, carefully consider the best use of your windfall.

  10. The waiting game would be so hard for me! But it’s definitely necessary. Waiting makes you really think about what you value, and what you really need to spend that money on.

    Giving is also a great idea – I’d like to think that I’d give a huge portion.

    • I hate to wait Lisa! It’s one of the things I have struggled with over the years. It takes a lot of effort to discipline oneself from acting to quickly.

  11. TacklingOurDebt says

    Waiting seems to be the most popular tip and I would agree. Although I wouldn’t wait to pay off our current debt. I would wait on the spending but of course get the windfall into an investment or savings account right away even though interest rates are low. And I would keep it a secret, for sure.

    • Yes…I don’t see how you can go wrong paying off debt. That would be one thing I think you could take care of a little quicker.

  12. Agree on point 4, Success means more friends more relatives, Anyways as you mentioned you have to be careful and learn to say NO

    • It’s so hard to say “No” especially for people that like to please. Money can’t sustain love or friendship though. Once the money is gone, so will be many of the friends.

  13. I’d first remember that I probably owe almost half to taxes ….

    … then I’d start my planning. I feel I’m at a big advantage because I’ve already mapped out before on my site what I’d do with a million or even $500K. Basically I’d go after a good mixture of stocks, bonds, and alternative investments. Diversity is the key to sustainability.

    I do like the tip to give. You can never underestimate how important that is.

  14. Definitely get an adviser. And set some fun money too. Better blow 5% than the full inheritance in a whim.

    • It’s a good point Pauline and I agree. A small portion could definitely be set aside to spend, especially if there is a need (like an upgrade in computer or car for example). Just be disciplined enough to draw the line. Many aren’t. And I would still wait to spend it until my other needs (like debt) were analyzed.

  15. I couldn’t agree more Brian. My main points would be to wait until the novelty of the cash flow wears off. The next step would be to consult a professional to help you get everything together. You need to understand taxes and all of that stuff that comes with more money. Take it in baby steps.

    • Right…there is no rush. I would add when hiring a professional for their ongoing services, make sure to interview several (maybe at least 5). The profession has clear differences in the types of advisers to hire and some may not have your best interests in mind.

  16. This is very ironic as we watched “Broke” on Netflix this weekend. I think it’s especially hard for people who grew up poor to suddenly have tons of money. You almost can’t blame them for going a bit nuts, Almost. I think waiting for a while is a great way to gain some perspective before doing anything crazy with a windfall. I hope I have that problem someday, but since I don’t have any wealthy relatives, don’t play the lottery, and am unlikely to get signed on as a professional athlete, I guess I’ll have to earn it the old fashioned way!

    • While not true in every case, poverty seems to equate with financial illiteracy. That makes sense to me. So the athletes from poor environments who get that first big contract have no training in their background in how to handle such wealth. Hence they are easily taken advantage of as that documentary pointed out.

  17. I think #4 would be the hardest. I remember Oprah talking about that and how once you achieve fame and fortune people start coming out of the woodwork. You don’t want to see “ungenerous” but you have to be cautious. I totally agree with your tips, especially waiting. I think if you reached that kind of financial windfall suddenly it probably feels a bit shocking! I know I would be in shock! 🙂

    • I agree #4 is tough, especially for someone who has a naturally giving spirit. It’s a sure fire way though to lose a bunch of money quickly.

  18. I think you have to make sure that if you do spend some or all of it, you don’t incorporate the expenses or any associated costs as part of your ongoing budget, simply because it’s a one time thing. How many people take a lump sum and drop every dime on a new car, but then fail to realize that there are increased associated costs like insurance and such that can actually end up putting them further behind than when they started?

    • That’s a great point! Not thinking about the recurring costs over time is a big oversight. Another example would be purchasing that huge house and forgetting about owing real estate taxes each year.

  19. Love your tip about waiting, Brian. It’s smart to give the whole situation time to set in before spending any of the cash. Give yourself time to think about what’s really important in life, then decide what to spend the money on.


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