More than 125,000 people have sadly passed away at the hands of Covid-19, many of whom would have expected to live much longer lives. As a result, there are likely to be a large number of people coming into sums of money they didn’t anticipate.

Regardless of the size of the inheritance, if you receive an unexpected windfall you should always think carefully before spending it. It is important to take your time to consider your options, as you may well already be feeling overwhelmed by the situation. You may even want to involve a trusted family member or friend in your decision making if you have received money following a bereavement.

Of course, once lockdown ends, there will always be the temptation to splurge on the things we’ve missed, but if used wisely, a large sum of money has the potential to transform your life.

With that in mind, here are five things to bear in mind if you come into unexpected money.

Make a plan

Most people don’t keep a detailed plan on what they’d do if they came into a large amount of money.

However, it is important to make one before you think about spending your cash frivolously. Otherwise, it can be all too easy to get overly excited and start frittering it away on things you don’t really need.

Write down everything you might want to do with the money, including gifting. This could be anything from going on holiday to helping a loved one to purchase a home. It can be easier to plan when you have all the information in front of you, not just vague ideas.

A plan will also help you see which goals you can afford now, and which goals you may be able to afford in the future.

Pay off your debts

Settling your debts is usually the most sensible thing to do if you come into unexpected money. By settling debts now, you can save yourself from having to repay interest on the debt later, which compounds over time.

This can save you large amounts of money, especially if it is a large debt or one with high-interest payments. It may also be wise to pay off short-term debts, such as overdrafts or credit cards since they typically have higher interest rates. After you’ve paid those, you can start thinking about paying off other long-term debts, such as mortgages.

Keep an emergency fund

Nobody can predict the future, so no matter how well you manage your money, it’s always worth keeping a rainy day fund. This can give you peace of mind if disaster should strike.

Although the spending power of cash is eroded by inflation, it can still be important to keep a fund that’s easily accessible just in case. As a general rule, it’s worth setting aside an emergency fund with enough money to cover three to six months of expenses.

Save a bit, spend a bit, invest a bit

One important decision you will have to make is whether you should save your new-found money or invest it. Your goals should have a strong influence on what you decide.

If you’re averse to risk, putting your money into a savings account may suit you. But it may not increase in value much, if at all, as current interest rates are likely to be below inflation.

Putting your money in a savings account is also useful if you have a short-term goal in mind, such as booking a holiday.

On the other hand, if you have a long-term goal, such as building wealth to pay for a comfortable retirement, it might be worth investing your money instead. Investing can help you grow your wealth in the long term and help to beat inflation over time. But it does come with risks and you should invest with a minimum time frame of five years or longer.

Consult a financial planner

If you come into a large amount of money, you should consider speaking to a qualified financial planner who can help you to use it to achieve your goals. If you haven’t dealt with a planner before, you will probably think you don’t need one. However, when you’re dealing with large amounts of money, it can become stressful and difficult to know if you are using it efficiently.

A financial planner will work with you to understand your objectives and guide you through the process that may initially appear daunting. More importantly, once your plan is in place, the financial planner will review this with you over time to ensure its fit for your life goals and objectives.

Robert MacDonald is chartered wealth manager and chartered and certified financial planner at Succession Wealth.