Getting an inheritance: what to do with a cash lump sum
1 July 2024
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If you’re about to receive or have just received an inheritance it’s likely you’re wondering: What’s the best way to use this money?
If this inheritance is due to the loss of a loved one, you may also be navigating an emotionally heavy time. Feeling overwhelmed and unsure what to do is completely normal for most people.
This guide can help you consider what’s possible, so you can move forward with more clarity.
Start by taking a long breath
When emotions run high, it’s easy to make reactive decisions you might later regret. Like splurging on lifestyle upgrades that feel good in the moment, but don’t necessarily set you up for the future.
Before you act, give yourself time to think about what matters most to you. This is a good time to reflect on your goals – big or small! Clear goals can help guide you towards choices you’ll feel comfortable with, rather than ones you may second-guess later.
So, what do you do with the money? Here are some options that could help you feel more secure, and position you for a better financial future:
1. Pay off debts
If you’ve been juggling debts such as a mortgage, car loan or credit cards for years, using your inheritance to reduce or clear them can ease financial pressure and give you peace of mind.
Of course, not all debt is bad debt so seeking financial advice could help to work out which debt to tackle first.
2. Top up your emergency fund
Unexpected life events, such as illness or injury, job loss, or economic downturns, can happen at any time. An emergency fund acts as a safety net, giving you financial security when you need it most.
The government’s MoneySmart website recommends saving enough to cover three months of expenses for you and your family.
3. Boost your super
Adding to your super can help you live the life you dream of in retirement. If you're under 75 an inheritance offers an opportunity to make after-tax (voluntary) contributions to your super to give it a real boost.
Super contributions can be tax-effective, but there are rules around how much you can add, depending on your age and balance.
For example, there’s a $120,0001 annual cap on after-tax contributions each financial year. In some cases, you may be able to contribute up to $360,0001 in one year by using the ‘bring forward’ arrangement. You might even have the option to contribute to your partner’s super.
Contributions to super are preserved which generally means your contribution will be locked away until you meet a condition of release like turning 65 or retiring after the age of 60. Because contributions can’t be reversed it’s wise to get financial advice before making any decisions.
4. Treat yourself
It’s okay to enjoy some of your inheritance on things that make you smile. Whether it’s a holiday you’ve always dreamed of, upgrading your car, or creating a space you love at home, spending a little on something meaningful can bring joy and help you honour the person who left you this gift.
The key is balance: treat yourself without losing sight of your bigger goals.
5. Pay it forward
For some, giving back feels like the right thing to do. You might choose to donate to a charity close to your heart, support a community project, or help family members who need a hand.
Even small gestures can make a big difference and create a legacy that reflects your values.
These are just some of the options. Everyone’s situation is different, and you should consider getting financial advice and tax advice to determine what’s best for you.
1 For the 2025-26 financial year. If your total super balance is over $2 million at 30 June of the previous financial year your non-concessional contribution cap for the following financial year is $0.
