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HOW TO USE A LUMPSUM AMOUNT

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There are certain times in an individual’s life wherein they receive a massive amount of cash inflow in their bank account. This lumpsum amount could arise due to various circumstances such as bonus, inheritance, sale of investments, tax refunds, payment arrears, or in any other way. What would you do if you receive such a lumpsum amount? Would you recklessly spend it entirely or would you use them in an efficient way? If you are clueless on how to efficiently use a lumpsum amount, don’t worry, you are not alone.In this article, we will understand different ways in which you can use your lumpsum amount.

How to use a lumpsum amount?

Here’s how you can use your lumpsum flow of money in an efficient way:

  1. Replenish your emergency fund
    You can consider allotting a part of your lumpsum amount to refill your emergency fund. Your emergency corpus should at all time contain at least three to six months of your living expenses. Emergency corpus can be quite handful in situations wherein an expected contingency arises out of where, as emergencies always come without knocking the door. It is a good idea to park your emergency corpus in highly liquid instruments, so you can quickly withdraw cash as required and also earn returns on your investments meanwhile.
  2. Try to be entirely debt free
    Rather than making a new investment from your lumpsum amount, it is advised to clear off your debts, especially high interest-rates loans such as personal loans, credit card debts, any other unsecured loans, etc. Because, like it or not these debts end up consuming a significant chunk of your earnings in the form of high interest rates. Make sure to figure out any prepayment forfeits, if any, and try to close these debt account as soon as possible.
  3. Invest investinvest
    Investing in good investment options is a good way to build a financially secured future for yourself and your loved ones. Before short listing the right type of investment for your investment portfolio, you must consider several parameters such as investment horizon, risk profile, income levels, financial objectives, liquidity, tax implications, etc. Mutual fund investments are a good option for investors who are just beginning their investment journey and wish to make a lumpsum investment. You can use a mutual fund lumpsum calculator to better evaluate the returns on your mutual fund investments. This will help you to plan your finances in a better and efficient way.
  4. Pamper yourself
    You must consider saving a small part of the lumpsum amount and using it to spoil yourself. It can be anything from a luxurious spa to shopping spree to a new gadget to a new bike.Spending a decentsum of the lumpsum amount on yourself will serve as an emotional boost instead of feeling indignant that you couldn’t do things your heart wanted to.

These were a few ways in which you could efficiently use a windfall of money. Consider talking to a financial expert or advisor if you are still unsure about how to spend a lumpsum amount. Happy investing!

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