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Many of us dream of all the things we would buy if we won the lottery – such as fast cars, holidays and a fabulous new home.


In reality, the chances of hitting the jackpot are extremely slim If you’re lucky enough to get a windfall, this is far more likely to be an inheritance.


For those fortunate to come into wealth from a family member, it’s vital to think very carefully about what to do with this unexpected cash.


While you may be tempted to go on a no-expense-spared spending binge, you are far better off taking a more measured approach.  Pause and think about the best thing to do with the money.


After all, it can be all-too-easy to fritter the money away and have nothing to show at the end.


Here we take a look at how to make the most of a lump sum no matter whether you receive £5,000, £10,000, £20,000, or even a hefty £100,000. 


What could you do with £5,000

While £5,000 probably isn’t going to change your life, it can still be used to start laying the groundwork for a better financial future.


First off, you should use this money to clear any debts you have on credit cards, loans and overdrafts.


This may not sound particularly exciting, but will give you a chance to wipe the slate clean so you can start building up savings once again.


Equally, if you have debts, the chances are, the interest you’re paying will far exceed what you could earn by putting the inheritance in a savings account. So, rather than squirrel your lump sum away, you should first use it to pay off the money that you owe. That will save you money.


If you have any cash left over, your next priority should be to set up a fund which you can access easily for short-term emergencies or requirements.


This rainy-day fund is best held in a cash account, such as an instant access account or tax-efficient individual savings account (Isa); the current cash Isa limit is £15,240.


As a rule of thumb, you should look to have between three and six months’ of expenditure tucked away.


What could you do with £10,000

If you get a lump sum of £10,000, you can really start to think about making a difference to your finances.


Once again, your first priority should be clearing debt, followed by setting up a rainy day fund.


But once you’ve done this, you can start to think about saving for the future.


If you are likely to need the money in the next five years – perhaps for a deposit on your first homethe stock market could be too risky, so you are better off sticking to the safety of cash.


For those planning on putting their lump sum into savings account, the key is to shop around for the best rate you can find. Useful sites for comparing rates include and


Once you’ve put your money in an account, you need to keep a close eye on the rate you’re getting, and be prepared to move your money again if the account gets uncompetitive.


Equally, if you have other expenses you are looking to cover – such as a wedding, big holiday, or house renovations – this money could prove very helpful, and avoid the need to go into debt.


Alternatively, if you have young children and want to save for school or university, this money could be a great starting point.


What could you do with £20,000

With £20,000, and a longer-term investing horizon, you can think about the stock market. While this is more risky than cash, it is also potentially more rewarding.


For those dipping a toe into the stock market for the first time, it is important to establish your aims – such as how long you are planning to invest for, and how much risk you are prepared to take


While you can invest in individual shares after researching a company, you can reduce risks by investing in a wide range of shares through investment funds. One tax-savvy option involves popping your funds or shares inside a stocks-and-shares Isa; the limit for equity Isas (as with cash Isas), is £15,240.


Before investing, you either need to do your homework or take advice; to find an adviser, visit


The key thing to remember is that the earlier you start investing for the future, the more chance your money has to grow.


Equally, a lump sum of £20,000 would provide a decent deposit on a first home.So if you’ve never owned your own home, this could be the time to do it. For example, on a property costing £200,000, this would give you a 10% deposit and access to mortgages at 90% loan-to-value.


While some lenders will accept a deposit of just 5%, a bigger deposit will give you access to a wider choice of mortgages and cheaper deals.


At the same time, if you already have a mortgage, you could use this money to “overpay” your home loan. This is simply paying off more than your normal payments.


Most lenders allow you to pay 10% of your mortgage balance as an overpayment per year  though overpaying by more than this usually incurs hefty charges.


Alternatively, you could start paying into a personal pension and claim valuable tax relief (20% for basic-rate taxpayers and 40% for higher-rate taxpayers). If you are already contributing to a pension, you could look into increasing the amount you pay in each month.


What could you do with £100,000

If your inheritance involves a six-figure sum, you need to think carefully about the tax implications.


One option you might want to consider is putting the full amount into an Isa. If you have a partner, you could make use of their allowance as well.

Valuable tax benefits can also be claimed by putting some of the money into a personal pension.


With £100,000 to slot away, investment is likely to be your primary focus. The key is to invest for the long term, spread your risk, and not get shaken by volatility. And remember to be clear about how much risk you’re willing to take.


You might be tempted by investments, such as a buy-to-let property. That said, if your home is your main asset, you need to beware of putting all of your money into property. Remember the old adage: don’t put all of your eggs in one basket. You need to diversify.


Whatever you do, be sure to steer clear of any investments which you don’t understand, or which sound too good to be true; very high returns means there’s a good chance you will lose all your money. Higher returns generally indicate higher risks.


At the same time, with £100,000 to play with, this could also be a good time to set up savings for the next generation. This could include a mixture of Junior Isas, dedicated children’s savings accounts, premium bonds and pensions. By starting early, these savings could grow into a very welcome nest egg by the time your son or daughter turns 18.


Crucially, if you have inherited a large sum of money, you must spread it around to ensure it is protected by the Financial Services Compensation Scheme (FSCS). This protects deposits up to £85,000 per banking licence, and £50,000 at investment and mortgage firms.


Don’t forget to have some fun

Finally, it’s a good idea to set aside at least a small slice of your windfall for some frivolous spending on something you’ve always wanted, such as a new watch, designer handbag, or trip to somewhere exotic.

You can view this as a reward for being sensible and disciplined with the rest of the money!


What is Money Means?

Money Means is a news and information series written by independent financial and consumer journalists and experts. FSCS launched Money Means in 2016 to help give people clear and useful information about personal finance, to increase their understanding and confidence when dealing with money.

9/8/2017 2:31:51 PM