What to Do With a Lump Sum of Money (or a Windfall)
Received a windfall? Here's a calm, step-by-step guide to what to do with a lump sum of money in Australia, without making a costly mistake.
By Timothy Hirou GaschereauPublished 11 min read
So you have come into a chunk of money. Maybe an inheritance from someone you loved, a redundancy payout after a rough few months, a bonus, a legal settlement, a bigger-than-expected tax refund, or just a lucky windfall. Whatever the source, you are now sitting with more money than you are used to handling at once, and it feels like a lot.
That mix of emotions is normal: excitement and anxiety at the same time, grief and gratitude side by side, maybe guilt or pressure from family. All of it is valid. Here is the single best thing you can do right now: nothing, not yet. This is general information, not advice, but the calm framework below will serve you far better than any flashy move.
🎯 The essential: Do nothing first: park the money in a high-interest savings account and give yourself a cooling-off period before any big decisions. Then a flexible order: set aside any tax owing, clear high-interest debt (a guaranteed return), build a 3 to 6 month emergency fund, then the bigger levers (mortgage/offset, super, long-term investing), and ring-fence a small guilt-free fun slice. Match money to your time horizon: short-term goals stay safe, long-term can grow.
Step 0: do nothing first
This is the most important step, and the one most people skip. When a lump sum lands, the temptation to act is enormous: the investment ideas flood in, the relatives call, the ads somehow know. Resist all of it, at least for now. Park the money in a high-interest savings account and give yourself a cooling-off period. A few weeks is good; a few months is fine. The money is not going anywhere.
- Panic decisions are expensive. The first exciting idea is rarely the best; reflection separates the good from the merely good-feeling.
- Lifestyle inflation creeps in fast. Once you start spending it is hard to stop, so make a plan before your habits adjust to a new normal.
- Grief and job loss cloud judgement. If the money came with a loss or a redundancy, this is not the time for irreversible decisions.
- Pressure from others is real. You do not need to have an answer for anyone right now.
Watch out for the vultures
Sudden money attracts attention, some well-meaning, some not. Be wary of unsolicited investment “opportunities” (scammers specifically target people who have just come into money), get-rich-quick schemes with returns that sound too good to be true, and pressure from loved ones. That last one is hardest because it comes from people you care about, but you are allowed to say “I'm still working out what to do” and leave it there.
“I'm still deciding” is a complete sentence. Be warm, be vague, and take your time. Your brother-in-law who made a killing on one stock is not a financial adviser, and you do not owe anyone an explanation or a share.
A sensible priority order
A flexible framework, not a rigid rulebook. The right order for you depends on your debts, goals, income and timeline.
- Set aside any tax you might owe. Some windfalls are taxable (parts of a redundancy payout, CGT on an investment sale). An inheritance itself is generally not taxed in Australia, but income it later earns is, and CGT can apply when you sell inherited assets. If unsure, quarantine 20 to 30% until you have spoken to a registered tax agent.
- Clear high-interest “bad” debt. Paying off a card charging 20% is a guaranteed, risk-free 20% return. Nothing reliable beats that. See our guide on which debts to prioritise (and note HECS, being low-cost, usually comes last).
- Build or top up your emergency fund of three to six months of expenses in a savings account. Our emergency fund guide helps you size it.
- Then the bigger levers, depending on your goals: extra into the mortgage/offset (a guaranteed return equal to your rate), boosting super (tax-effective, but locked away until preservation age, and mind the caps), long-term investing in low-cost diversified index funds/ETFs, or saving for a specific goal.
- Allow a small “fun” slice. Ring-fence a modest, guilt-free 5 to 10% to enjoy. A plan you actually like is a plan you will stick to.
Match the money to your time horizon
A common mistake is putting money you will need soon into assets that can fall in the short term. Simple rule: do not put money you will need in the next one to three years into shares or property. Match the risk to the timeline.
| Goal | Time horizon | Suitable home for the money |
|---|---|---|
| Emergency buffer | Immediate access | High-interest savings account |
| Short-term goal (car, deposit) | 1 to 3 years | Savings account or term deposit |
| Medium-term goal (reno, study) | 3 to 7 years | Offset, or lower-risk ETFs |
| Long-term wealth | 7+ years | Diversified index funds or ETFs |
| Retirement | Until age 60+ | Superannuation (with advice) |
Deciding whether to invest the long-term portion all at once or gradually? See our lump sum vs dollar-cost averaging guide before you decide.
Special situations worth knowing about
Redundancy. You may need this money to live on while job hunting, so be conservative. Part may be tax-free under the ATO's genuine redundancy rules, the rest taxable, so do not invest it all if you will need it for rent and groceries soon. Stability first. See our redundancy pay guide.
Inheritance. This often arrives with grief, so do not rush. An inheritance is generally not taxed as income in Australia, so you have time, park the money and make decisions when you are ready. Be aware CGT may apply if you later sell inherited property or shares.
Large or complex sums. If you have received $100,000 or more, consider paying for a one-off session with a fee-for-service (fee-only) financial adviser, who charges a flat fee rather than earning commissions. For a large windfall, personalised advice is worth every cent. This article is general information only.
The calm, boring plan wins
Here is the truth about what to do with a lump sum: the boring plan almost always beats the exciting one. The person who parks the windfall, pays off the credit card, builds the emergency fund, and then quietly invests the rest over time almost always ends up better off than the one who made a bold move in the first week.
A windfall is an opportunity, not a test. You do not have to get it perfectly right, and you do not have to decide everything at once. You just have to avoid the big mistakes: acting too fast, taking too much risk, and letting other people's urgency become yours. Take your time, make a plan, stick to it. And watch out for lifestyle inflation quietly absorbing the lot.
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❓ Frequently asked questions
What should I do first when I receive a lump sum of money?
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The single best first step is to do nothing. Park the money in a high-interest savings account and give yourself a few weeks (or even a few months) before making any major decisions. This protects you from panic decisions, lifestyle inflation, and pressure from others. Once you have had time to think clearly, work through the priority order: check your tax position, clear high-interest debt, build your emergency fund, and then consider your longer-term options.
Is an inheritance taxed in Australia?
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Australia has no inheritance tax, so the inheritance itself is generally not taxed as income when you receive it. However, any income the inherited assets later generate (such as rent or dividends) is taxable, and if you sell inherited assets like property or shares, capital gains tax may apply. The rules can be complex, so it is worth speaking to a tax agent or accountant if you are unsure.
Is a redundancy payout taxable in Australia?
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Partly. If your redundancy qualifies as a genuine redundancy under ATO rules, part of the payout is tax-free, with the rest generally taxed as an employment termination payment (ETP). The tax-free amount is a base figure plus an amount for each completed year of service, and it is indexed, so check the ATO's genuine redundancy payments page for the current figures. Your employer should provide a payment summary showing the breakdown.
Should I invest a lump sum all at once or spread it out?
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Both approaches have merit, and the right answer depends on your situation, timeline, and comfort with risk. Investing all at once (lump sum investing) has historically produced better average returns, because more money is invested for longer. Spreading it out (dollar-cost averaging) can reduce the psychological sting of investing right before a dip. Our lump sum vs dollar-cost averaging guide explores this in detail.
How much of a windfall should I keep as an emergency fund?
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A good emergency fund covers three to six months of your essential living expenses, held in a readily accessible savings account. If you do not have one yet, building it now is a high-priority use of your lump sum. If you already have a solid emergency fund, you can skip this step and direct more of the windfall toward debt repayment or investing.
Do I need a financial adviser for a lump sum?
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Not necessarily, but it depends on the size and complexity of the windfall. For larger or more complex windfalls (say $100,000 or more), a one-off session with a fee-for-service financial adviser is often a genuinely good investment. Look for a fee-only adviser who charges a flat fee rather than earning commissions, and you can check an adviser's licence on the ASIC financial advisers register. This article is general information only.
Keep reading
📚 Recommended reading
The Barefoot Investor
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Die With Zero
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Making Money Made Simple
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Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
This article is general information only, not financial or tax advice. It does not consider your circumstances. Tax rules for redundancy, inheritance and capital gains change and depend on your situation. Consider a licensed financial adviser or registered tax agent before acting.
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General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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