How to effectively manage a large lump sum of money
In The Bahamas there have been thousands of people who have been given the opportunity to receive a large lump sum of money unexpectedly. Some have been able to hit a “lucky number”, while others have been awarded a pretty penny from a lawsuit settlement. Then there are those who have had a large inheritance from a death of a loved one, a large pension payout, a company’s year-end work bonus and a large company settlement, like what happened with BTC and most recently BPL.
It’s sad to say, but a good number of these lucky persons have little to show from these financial blessings. I would like to share with you a few tips on how to effectively manage such a large sum of money.
Keep it a secret. One of the most common mistakes people make when they get a lot of money at one time is sharing this information with people. It’s human nature to want to share the news of your good fortune with everyone, but you must show restraint. There are few people who can help you at this point. They are your spouse, immediate family or closest friend in the world. Also, you should seek the help of professionals, such as a financial planner or advisor. You need to get a solid plan in place before making any decisions, and that plan involves a team of professionals. We live in the age of social media where it can be very tempting to tweet or create a Facebook post that gives a subtle or subliminal message about your financial blessing. If you do that, be prepared for the floodgates to open with every scammer or person expecting a handout to relentlessly pursue you. You might feel like you’re the same person, but to everyone else, you’re a walking money bag.
Pay off all debt. This recommendation is often overlooked because people want to enjoy the money and neglect the fact that they have debt or other obligations. Before you enjoy this lump sum of money you should quickly pay off all your debt. This is even more important depending on your age. This is a chance to erase all those debts and loans that have been haunting you. But again, before you pay them off, you should talk with an advisor since there are ways debt can work to your advantage.
Remain calm. You should carry out your same day-to-day routine. Having newfound wealth can be like grocery shopping when you’re hungry. You end up buying a lot of regrettable stuff you don’t need. We all know how that is. Don’t purchase anything you wouldn’t normally buy; no mansions, Lamborghinis, yachts, islands, Rolex watches, etc. At least not yet. You’ve undoubtedly heard stories about lottery winners going broke. The reasons are simple and can happen to us all without proper guidance. They simply think that the money will never run out, so they spend more than they have. Everything runs out eventually. Your goal should be simple, and that is to get the most use out of the money. You must also preserve what’s left for those you love.
Create an emergency fund. This is a fund that you put aside in the event of an accident or unforeseen circumstance in life. Getting a good life and health insurance policy is also included in this emergency fund. Life is funny sometimes, and we should always expect curve balls. A key component of this is also creating a will. I know most people don’t want to do one because it feels like you’re preparing to die, but with a large sum of money, it is now a necessity. You need to ensure all your assets are accounted for and going exactly where you need them to go.
Enjoy it. After you’ve done all those steps then you can enjoy your lump sum of money. Most persons skip those previous steps and come right to this one! You must enjoy your blessing; travel or business. Doing whatever your heart’s desire is a good feeling once you have already secured and completed the most important matters.
- Quinton C. Lightbourne is a certified financial planner with the Chartered Institute of Bankers in Scotland and vice president of the Bahamas Investments & Securities Business Association (BISBA). E-mail: [email protected].