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What to Do with a One-Off Bonus or Inheritance

6 min readCompound

Key takeaways

A bonus, severance pay, an inheritance, proceeds from selling a flat — an unexpected larger sum is an opportunity, but also a trap. Under the pressure of "I have to do something with this," mistakes happen. Here is a calm sequence to follow.

Step 0: Don't rush

More money does not call for an immediate decision. Leave it on a savings account for a few weeks and think it through. Especially with an inheritance, emotions are often running high — let them settle before you decide with your head. No good opportunity will vanish in a few weeks.

Step 1: Top up your emergency fund

If you don't yet have a full emergency reserve (3–6 months of expenses), this is the ideal moment to complete it. It is the foundation of peace of mind on which everything else rests.

Step 2: Pay off expensive debts

Paying off high-interest debt (credit cards, consumer loans) is a guaranteed return equal to that interest rate — often more than the market can reliably offer. A low-rate mortgage is a different matter; you don't need to rush that. But expensive debt: clear it.

Golden order: emergency fund → expensive debts → money for near-term goals (within ~3 years) set aside → only then invest the rest. This sequence protects you from investing money you will soon need, or from investing while carrying costly debt.

Step 3: Ring-fence money for near-term goals

Planning a car, a renovation, or a wedding within three years? That money does not belong in equities — put it on a savings account or in very conservative instruments. Over a short horizon, market volatility is a risk, not an opportunity.

Step 4: Invest the rest wisely

Whatever remains for the long term, put into a broad, low-cost index — not a single stock, a cryptocurrency, or a tip from a friend. For the mode of entry, consider lump sum versus spreading it out: a smaller amount is fine to invest at once; a large one (that you'd watch nervously) can be spread over 3–6 months. Statistically, lump-sum entry wins, but gradual deployment eases the nerves.

Don't forget taxes

For inheritances and large disposals, check the tax implications (inheritance from close relatives is often tax-exempt, but confirm this; for the sale of securities the time test and value threshold apply). For larger sums it is worth a short consultation with an adviser — this is an educational overview, not tax advice.

FAQ

Should I invest an unexpected sum straight away?

Don't rush. Leave the money on a savings account for a few weeks and decide calmly, especially if an inheritance comes with emotions. Then follow the steps: emergency fund, expensive debts, near-term goals set aside — and only then invest the rest.

What comes first — paying off debt or investing?

Pay off expensive debts first (credit cards, consumer loans). It is a guaranteed return equal to the interest rate, often higher than a reliable market return. A low-rate mortgage can wait. Only after clearing expensive debt should you invest the remainder.

Should I invest a larger amount all at once or in instalments?

Statistically, lump-sum entry more often wins because markets tend to rise. With a very large amount that you would watch nervously, spreading it over 3–6 months makes sense and reduces the risk of bad timing. Your psychology matters too.

Do I have to pay tax on an inheritance?

An inheritance from close relatives is usually tax-exempt, but confirm this against the current rules. The bigger concern is the tax on a later sale of inherited securities, where the time test and value threshold apply. For larger amounts, consult an adviser.

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