You might get a lump sum as part of your financial settlement. If you haven’t already decided what you’ll use it for, think about your options carefully.
Looking after your lump sum in the short term
Unless you already know exactly what you want to do, it’s worth putting the lump sum in a savings account while you weigh up your options.
It’s important to keep a ‘buffer’ in your current account or in an easy access savings account to pay for unexpected expenses.
Keeping your lump sum safe
Cash you put into UK banks or building societies (that are authorised by the Prudential Regulation Authority) is protected by the Financial Services Compensation Scheme (FSCS).
The FSCS savings protection limit is £85,000 per authorised firm. If you have a temporary high balance, you have protection under the Financial Services Compensation Scheme (FSCS) for up to £1 million. This is for up to six months from the date the account was first credited. Find out more in our guide How safe are my savings if my bank or building society goes bust?
It’s worth being aware that some banking brands are part of the same authorised firm. If you have more than the limit within the same bank, or authorised firm, it’s a good idea to move the excess to make sure your money is protected.
Find out which banks are part of which authorised firms on the Bank of England website
Money in National Savings & Investments (NS&I) is guaranteed by the government, no matter how much you have.
Find out more in our guide What’s the difference between saving and investing my money
Securing your future
There’s no ‘one size fits all’ approach to securing your financial future. How you do it will depend on:
- how much money you have to save or invest
- whether you have any existing debts to pay off
- how long you can leave your money in a savings account or invested
- how much risk you’re prepared to take and whether you can leave your money invested for the long term. For example, would you panic if you invested £10,000 and it was worth £9,000 six months later? Bear in mind that your attitude to risk might vary depending on what you’re investing for.
Dos and don’ts
Do:
-
Do take time to work out what your immediate financial priorities and your long-term goals are.
-
Do make sure you have three to six months’ expenses in savings before you think about investing. See our guide Emergency savings – how much is enough?
-
Do take regulated financial advice unless you feel comfortable choosing your own investments.
-
Do think about your attitude to risk. Many people who lose money investing do so because they cash in their investments when prices have fallen.
Don’t:
-
Don’t make long-term financial decisions when you’re feeling under pressure, as you might not make the best choices.
-
Don’t invest until you’ve paid off debts – for example, store cards, credit cards or bank loans.
-
Don’t invest in anything that you don’t understand.
-
Don’t think investing has to be all or nothing – you can always invest a small amount and see how you feel about it after six months or so.
Find out more in our beginners guide to investing
Buying a new property
If you live in Wales and only have enough for a small deposit – for example, 5% or 10% – you might be able to borrow through the Help to Buy scheme.
To find out more about this, and government support schemes elsewhere, see our guide Government schemes for first-time home buyers and existing homeowners.
Don’t forget that you’ll have a number of fixed costs to pay, such as:
- Stamp Duty
- survey fees, and
- legal costs.
Mortgage affordability calculator
To work out how much you can afford, use our mortgage affordability calculator.
Find out more in our guide The cost of buying a house and moving
Investing in a pension
Don’t forget your pension. You might feel that there are other – more immediate – financial priorities.
But try not to put off paying into your pension or starting a new one.
You might have a lump sum from your ex-partner’s pension that you need to invest. If that’s the case, you might need advice about what to do with it.
It’s a good idea to start gathering information on the pensions you already have.
Check what your State Pension is likely to be by requesting a forecast on the GOV.UK website, and how much you think you might need to live on when you retire.
If you’re employed, your employer will already have a pension scheme you can join or will offer one.
This is likely to be a better option than setting up your own pension, as your employer will pay into it as well.
Want to discuss your pension options?
One of our pension specialists can guide you through your options during a divorce. They’ll talk to you about what you’ll need to think about, and where to get regulated advice if you need it.
Find out more in our guide Automatic enrolment – an introduction
Securing your children’s future
You might want to invest some of your lump sum to pay for the costs of your children’s education or the costs of bringing them up.
Think about using a tax-free account – for example, a Junior ISA (or a Child Trust Fund if your child already has one).
There are limits on how much you can pay into them every year.
You can choose a cash or stocks and shares investment ISA, or you can split the money between them.
