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Financial Planning

Life’s not all beer and skittles – how to manage a lump sum

22 February 2017

Money & Life team

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

Winning the lottery is the ultimate financial dream for many folk, but most people will not fall into the category of lottery winners in their lifetime.

However, many will receive a lump sum at some stage – whether it’s a redundancy payment or an inheritance on the death of a relative.

Thinking “spend, spend, spend” when it happens will soon end the fantasy of having a lot of money. It can easily be frittered away if you don’t put a plan in place and get some good financial advice.

The sudden receipt of a large amount of money can be intoxicating, but there are ways to get that money working for you, so you can feel more secure in the future while still treating yourself to “a little bit of luxury” at the same time.

It may be that you can “quit your day job” and go into business for yourself. But this will take a lot of planning and the normal business rules of starting a new company still apply. It’s no good starting your own business if you haven’t got a business plan which accounts for things such as cash flow and revenue forecasts; you might as well just blow the money on holidays and clothes instead.

Work out what you would like to achieve with the funds

Rhiannon Robinson, Financial Planner AFP® from Finance Women in Melbourne says some of the questions to ask yourself are: Are you looking to feel more secure, make day-to-day life easier, build for future wealth or steward this wealth for future generations?

“Part of this will be thinking about how long you want to invest the money for. Chances are you want to achieve more than one thing,” says Robinson.

“Consider whether you need to break the lump sum down into portions eg 10% to secure your current position (by building up an emergency fund), 15% to enjoy now – (top up holiday account), 50% for an investment portfolio (medium term flexible wealth), 25% boost to your super (long-term retirement living expenses).”

Get professional help

Financial adviser John O’Brien, AFP® of VISIS Private Wealth in Brisbane says employing a professional is crucial.

“Make sure you engage an adviser to guide you on your new financial path, that will inevitably be slightly more complicated due to the level of capital now being managed,” says O’Brien.

He says you need to make sure that you invest the funds in a way that matches your investment risk profile. “This is critical as you don’t want your investments creating more stress during a time you should be able to relax a little,” he says.


O’Brien says diversification is highly important. “I am sure you would hate to invest several million dollars into a speculative property development or other high-risk scheme just to see your capital evaporate.”

He says that Australian and international shares, property and term deposits are all great investments when used as part of a diversified portfolio.

Pay off debt – especially ‘bad’ debt

Although paying off debt may seem like a no-brainer, it’s not always the first thing people think of. When receiving a large lump sum some people can go into “magical thinking” and see their debt as the least of their worries, thinking they will take care of it later. But there are no benefits in paying unnecessary interest. This is especially true of credit card or other unsecured debt, often referred to as “bad debt”. With interest rates sky high on credit cards it’s best to pay off this debt as one of the first things you do.

Rhiannon Robinson goes so far as to say you might even consider “cutting up” those credit cards to reduce the chance that you “undo all your good work”.

John O’Brien says that a person’s stage of life would also have a bearing on paying off debt. “A person with a young family and a high level of debt would probably vary significantly to that of a retiree,” he says.

And one more consideration says O’Brien is that there are also tax implications if you have investment debt.

This article contains general financial advice only. It is provided by an Australian Financial Services licensee (AFS licensee) or the employee or authorised representative of an AFS licensee as identified in the article.

General financial advice does not take into account your objectives, financial situation or needs, and you should consider seeking professional financial advice before acting on the general advice provided.


Rhiannon Robinson, Finance Women, AFSL 307248

John O’Brien, VISIS Private Wealth, AFSL and ACL # 394583