What would you do if you suddenly had *a lot* of money?

Do you ever wonder what you would do if you suddenly came into some money? Whether it’s winning the lottery, a Premium Bond prize, an unexpected inheritance or any other possibility, it could be life changing.

Let’s face it – it’s probably not going to happen. Take the lottery for example. For UK Lotto, the odds of winning any prize at all are 1 in 9. So you may occasionally win a couple of pounds. But for the jackpot prize the odds are 1 in 45 million. And the odds on Euromillions are even higher : 1 in 13 for any prize and 1 in 139 million for the jackpot.

But if you did come into some money from somewhere, what would you actually do with it?

Let’s allow ourselves to daydream for a few minutes and look at five ways you could use a substantial sum of money.

Spend it!

We’ve all seen news reports over the years about people who have won a large amount of money then blown the lot. Back in 1961 Viv Nicholson, a Yorkshire housewife, won over £150,000 on the football pools. That’s the equivalent of over £3 million today! She declared upfront that she was going to “spend, spend, spend!” her winnings. The story of how she did this, ended up as a West End musical Spend Spend Spend. Needless to say, there was not much money left at the end.

So yes, suddenly having money will enable you to spend and to buy some of the things you have longed to have. And why not? Wouldn’t it be great to treat yourself and your family to some special purchases and experiences. 

In reality though, it’s probably better to do nothing at all at first if you do come into some money. You need time to catch your breath, and also to understand how much money you now have, and what difference it is going to make to your life. Think about what your priorities are, and plan what to do next.

Of course there will be money to spend, but you need to balance that against other things that are important to you.

Let’s take a look . . . 

Paying off debt

Most people in the UK are in some kind of debt. In January 2023, the average unsecured debt per adult in the UK was £3,941, and average credit card debt per household £2,277. Total debt per UK household – including mortgages – was £65,434. 

So if you were to come into some money, a key priority would be to pay off any debt you owe. Whilst this is not as enticing as spending money on nice things, just think how good it would feel to be out of debt completely. And once you are rid of debt, you will then have additional disposable income every month because you will no longer be using it to repay debts. Win-win!

Short term savings

It would make sense to put some of your money aside into a savings account, especially as interest rates for savers are high at the moment. Having short term savings means that the money is readily accessible if you need it, but it’s not right in front of you to spend. 

Look for a high interest savings account that still enables you to get your money back if you need it. For example, many banks and building societies are offering fixed term saving accounts with higher rates of interest, and many of these allow you to make a certain number of withdrawals a year whilst still keeping the account open.

Another alternative is to look at ISAs, as these are a way of saving up to £20,000 a year without having to pay tax on any interest you receive.

Longer term investments

As well as short term savings, if you still have money to spare then look at ways of investing it for the longer term. Three ways to consider doing this are:

• Investments

Two ways to invest your money longer term are fixed rate bonds and stocks and shares.

• Fixed rate bonds

If you can lock some of your money away for a period of up to five years, have a look for a fixed rate bond. This is a type of savings account that pays a fixed amount of interest for the agreed period as long as you don’t withdraw your money. If you do need to access your money before the end of the agreed period you may face a penalty charge.

• Shares

You could also consider investing in the stock market by buying shares. Companies use shares to help them raise money to run the company. When you buy a share in a company, you become a part owner of that company. For example, if your share was worth 1% of the company’s value, you would actually own 1% of the company. As the overall value of the company changes, the value of your 1% would also change. You can get your money back by selling your shares.

The two main ways to buy shares are either by direct investment – usually by setting up a share dealing account with either a bank or an online trading platform – or by investing in a stocks and shares ISA.

Just be aware that the value of shares can go down as well as up, so it is very possible that at some stage your shares could be worth less than you paid for them. If it is a long-term investment this is not as much of an issue, as the values are likely to go up again at some stage. But shares are not a wise short-term investment as if you need to get your money back quickly you could end up with less money than you started with.

• Pensions

Pensions are an excellent long-term investment. Even if you already have a workplace pension you can also start up a private pension. Not only will this increase your pension pot, but you can usually start withdrawing the private pension before your work pension, so would be able to retire earlier.

As well as saving for the future, you can also reduce the amount of tax you pay by making additional contributions (AVCs) into your pension(s), as these are deducted before tax, leaving you a smaller salary to pay tax on.

• Property

If you own a property one of the best long-term investments you can make is to pay off all or part of your mortgage. You could do this either with a lump sum, or by making higher monthly repayments. Not only will this reduce the total amount of mortgage you still have to repay, but also the interest remaining on that amount. This could enable you to pay off your mortgage much earlier than anticipated.

You can use a free online tool such as Money Saving Expert’s Mortgage Overpayment Calculator to see the difference that either a one-off or regular mortgage overpayment could make. 

Another property-related investment option to consider is to either buy a larger home for you and your family or to buy a second home as a Buy-to-Let or holiday property. Even in turbulent economic times, property is generally regarded as a safe investment. So if you have a significant amount of money, putting it into property could be a wise investment.

Giving to charity

Another thing that you may choose to do with your money is to give away some to charity. Many of us have often thought that we would like to do this if we had the means, and now could be that opportunity. 

Depending on the time you have, you could choose a charity that you could also become involved with in a personal way as well as giving money. Or you may prefer to just give some money, either on a one-off or regular basis.

The amount of money you give to charity can also be increased by tax benefits such as Gift Aid. The website Charities Aid Foundation explains various ways to maximise the money you give to charity.

So, if you are ever lucky enough to come into some money, we hope that the above information will help you to make the most of every penny!

Meanwhile, if you are short on money and need to boost your funds to sort something urgent out, remember that Loans 2 Go offer emergency loans that may be able to help.

Do visit us here again soon for more financial and lifestyle tips from Loans 2 Go.