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Dealing with lump sum income
Stick to your ‘rules’
It’s very easy to stray from our typical money management routine when a lump sum comes our way. However, if we have certain “rules” in place about how we allocate our income, it’s important to apply them in the same way to any lump sum received.
So if you’re accustomed to saving, spending or investing a certain amount regularly, sticking with that routine maintains discipline when that flood of income rushes in.
Ultimately, treating with a lump sum the same way we’d deal with any other income tends to be the best way to manage it and most prudent way to go.
Pay down debts
One of the advantages of lump sum income is the freedom it can give us to tackle outstanding debts. Either in whole or in part, using a lump sum to clear certain debts and financial encumbrances can improve our overall credit position and help our financial well-being. Reducing debt in areas that may not be as beneficial to us, will allow us more space to borrow in other, more productive areas.
Avoid lifestyle escalation
One of the most financially destructive things we can do with a sudden spike in income is to adjust our lifestyle in accordance with it.
A major key to personal financial success involves living on less than we earn, and it’s no different with a lump sum of money.
Treating lump sum income as if it were something that we can survive on is a path to ruin. Making long term decisions on a oneoff lump sum should always be approached cautiously.
Preparation in advance is key
Receiving lump sum income can really help us advance our financial goals when used well.
It’s important that we plan in advance and stay focused on what we wish to achieve in order to manage that income wisely so that we can live well beyond payday.
Guardian Media Limited