Most individuals plan on living on their regular income that usually comes in the form of monthly or weekly paycheck. However, there are occasions when one is bestowed with a windfall of money that they may not be expecting. Some common sources of lumpsums include sale of investments, tax refund, inheritance, bonuses, court settlement, etc. Most investors are clueless on how to use a lumpsum amount. This article aims to answer the same and bring you one step closer to your dreams.
Following are a few ways in which you can use a lumpsum amount:
- Clear your debt – One of the best ways to invest in lumpsum is clearing off your existing debt. This is especially true for credit card debt which accounts for around 10 to 15% interest per annum. Even if you aren’t able to pay off your credit card bill at once, consider paying down the balance. This will make a huge difference by diminishing your interest costs every month moving forth.
- Build an emergency corpus – Every individual should always have an emergency fund in place. Having an emergency fund in place ensures that you are ready for any downfall that life has to offer. As a thumb rule of investing, you should have a minimum of six months of your living expenses for any sort of emergencies. You can invest in mutual funds to achieve income on your emergency corpus and beat the rate of inflation. Choose investment options such as liquid mutual funds, high-yield savings account, money market accounts, etc. that have high liquidity.
- Save and invest – The key to wealth creation is to save as much as you can and invest them in right type of investment. Mutual fund investments are one of the most preferred investment options for most individuals. A lumpsum mutual fund has the potential to generate significant returns and build your portfolio. You can also use a mutual fund lumpsum calculator to understand the future value of your mutual fund investments. What’s more, these lumpsum calculators are fairly easy to use. Depending on your financial goals, risk profile, and investment horizon, choose the right investment option for your portfolio.
- Treat yourself – Even if you use majority of your lumpsum amount for the above listed purposes, consider withholding a small amount to treat yourself. You can use this to get on your hands on something you have been craving for a long time. It could be anything, ranging from a new bike to a new furniture, new vacation to a new dress – whatever makes you happy. Spending a small amount of the windfall on yourself will provide you with an emotional boost rather than feeling resentful that you weren’t able to do things that you wanted to do.
You must cautiously analyse the several investment options available to you before deciding where to invest your money. Your age and whether you need a monthly regular income are two of the most important factors in choosing the right investment for your lumpsum amount. Happy investing!