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What To Think About When You Come Into a Large Sum of Money



So, you’ve recently received a large sum of money in the form of a severance payment, a financial settlement, or maybe an inheritance.  Are you going to pay off your mortgage?  Renovate your kitchen?  Buy your teenager a car?  Most of us already have a wish list in our heads of what we would do if we had more money. 


But before you make any decisions about where that money is going, it’s a good idea to press pause for a moment and look at the bigger picture and your financial goals.

First off, be prudent and investigate any tax implications.  Severance payments are considered income and are taxable.  Divorce and insurance settlements are usually non-taxable, but there are some exceptions.


Next, look at your overall financial situation – debts, investments, as well as your future income and expenses.  How could this money shift or change things for you?

“This is a good time to review your short-term and long-term financial goals,” says Meaghan Neis, branch manager for Mountain View Financial.  “How could this money make the most positive impact for you today, and in the future?  Your initial plans may change once you think about it more.”

"Financial goals are meant to support what you want for yourself and your life.  Life goals come first and then decisions about money.  It's much easier to be successful if those two things are aligned."


Meaghan Neis,  Branch Manager in Didsbury AB


Getting rid of debt may seem like a no-brainer – and it might be.  High-interest credit cards should absolutely be paid off.  But with historically low interest rates on some loans, like mortgages, there may be a more strategic way to tackle those.


“Making sure you have an emergency fund or topping up your RRSP contributions to maximize your tax return might be better for you in the long-run,” says Neis.  “It’s about working through the numbers and reviewing them alongside your goals.”


If you are thinking about paying off your mortgage, investigate the terms of your mortgage loan agreement to make sure you can pay it off early without a financial penalty.



Maybe you’re planning on moving that lump sum into your investment portfolio.  There are a bunch of things to consider here too.  What is your risk tolerance to protect this windfall?  Will the amount shift your overall risk profile?  If so, should you switch up your existing investments?


It comes down to what you want for your money, explains Neis.  “How you invest your money will largely depend on your plans for it.  If you are counting on it to pay for your daughter’s university in a few years, you’ll want it in something low risk that protects the principal.  If you’re not planning on touching it until you retire in twenty years, the investment strategy and investment vehicles would be different.”


If you are looking at saving the money for retirement, you’ll want to invest thoughtfully.  Since inheritances, settlements and gifts are non-taxable, you’ll want to be aware of the tax implications of any investment choices.  You also need to be mindful of Tax-Free Savings Account (TFSA) contribution limits.



This sum of money could also put you in a position to buy something big.  If a big-ticket purchase is part of your plan, do your research and go in with your eyes open.


Buying your first home or upgrading your current home could now be an achievable goal.  Just make sure your budget matches up with your plans.  Be prepared for the increase in expenses that come with homeownership, like property taxes, home insurance, and condo or maintenance fees.  And be ready to put down roots and stay put for a while.


Items like cars, RVs, or boats depreciate as soon as you pull them off the lot.  Can you save money by buying slightly used?  Challenge your thinking about what a big purchase will mean to your life.  Will buying a 1970 Corvette Stingray make you happier?  (It might!) Or is it more about your life needing an injection of fun and adventure?



If you’re married, you’ll want to be mindful of how you spend or invest an inheritance or insurance settlement.  Inheritances and settlements are not considered marital property, but if you use it to pay off jointly held debt or to purchase a jointly owned asset, that protection goes away.

Make sure you keep all documentation on receiving the inheritance and all related financial records.  Seek guidance from a lawyer on how to protect your inheritance if you want to use it to buy or invest in a joint asset.


You may also be getting some extra attention from friends and family members who want you to help them out.  Be careful. It’s easy to get swept up in the desire to help the people you care about, but you need to make the best financial decisions for you.



“Financial goals are meant to support what you want for yourself and your life,” adds Neis.  “Life goals come first, then decisions about money. It’s much easier to be successful if those two things are aligned.”     


Think outside the box on how the money can impact your life positively.  Could it provide an opportunity to improve your work/life balance by reducing your work hours so you can spend more time with your family?  Would you be able create a new income stream to help fortify your retirement plans by investing in a rental property?  Or would having a lump sum in savings give you the peace of mind and confidence to make the leap into a new career or open your own business?


The financial experts at Connect First Credit Union are here to help.  They can help you understand your options and answer your questions about which ones might be best for you.