Receiving a large amount of money

From: Financial Consumer Agency of Canada

You’re expecting to receive an income tax refund or benefit payment? Excellent news!

View this resource developed jointly with the Canada Revenue Agency to manage this amount wisely and make the most of it.

What to do when you get money from the government.

You’ve received or will receive a large sum of money?

Make sure to have a plan and set your financial goals before spending this amount. 

To make the best decisions for your situation, view this resource developed jointly with Indigenous Services Canada.

You’ve just received a big amount of money.

You may get a large amount of money at some point in your life.

For example, you could get:

  • a settlement payment
  • a large inheritance of money or real estate when a loved one passes away
  • a lump sum payment for seasonal work
  • a Lump Sum Disability Award if you are a veteran
  • a large payment from a lottery or other contest
  • a severance payment if you lose your job
  • a large payment after completing a special work assignment
  • a life insurance payout

This is often called a windfall. It’s important to think about your financial situation and your short- and long-term goals before you spend any of this money. You may want to speak to a financial professional to help you figure out what to do.

Learn more about choosing a financial advisor.

Think about your money goals

Paying down debt and setting aside savings are examples of money goals. Thinking about what you want to do with your money is the first step to reaching your goals. Budgeting and saving can seem hard if you don’t have a clear plan.

Think about:

  • what your money goals are
  • when you want to reach them
  • what might get in the way of reaching those goals

Make a budget

A budget is a plan that helps you manage your money. It helps you figure out how much money you get, spend and save. Making a budget can help you balance your spending so you can figure out what you can afford.

To make a budget you will need to know:

  • how much money you regularly get from your job, benefits or other sources
  • how much you spend each month on “needs”, such as rent or mortgage payments, bills and food
  • how much you spend on “wants”, such as dining out and entertainment

Use the Budget Planner to create a budget that ensures you’ll be able to cover your ongoing expenses.

Pay down your debts

The interest you pay on debts, such as credit cards and loans, can cost you a lot of money. This means you have less money for yourself and your family.

Figure out what debts you have and how much you pay for each of them. Pay off your debts with the highest interest rate first as this will save you more money in the long term.

Learn more about managing debt.

Set some savings goals

Think about what you would like to have money for in the future. This will help you set your savings goals.

Some examples of things you might want to save for are:

  • a new home, or upgrades to your current home
  • a vacation
  • your children’s education – consider opening a Registered Education Savings plan (RESP) for this as you will get free money from the Government through the Canada Education Savings Grant (CESG)

If you are having trouble setting savings goals, try starting small by setting a short-term goal. This could mean a goal that you want to reach in the next year or less.

Set up an emergency fund

It’s important to have an emergency fund in case you have to pay for unexpected expenses or in case your income goes down.

Some examples of unexpected expenses include:

  • a car repair
  • an urgent visit to the veterinarian
  • job loss and the need to cover everyday expenses and bill payments
  • health problems that prevent you from working
  • house maintenance and repairs, such as replacing a broken hot water tank or leaking roof

Using emergency savings to pay for unexpected expenses is usually better than paying for them with credit. In general, it’s recommended that you build an emergency fund equivalent to 3 to 6 months of your living expenses.

Plan for your retirement

Consider saving some of your money for retirement. This is especially important if you don’t already have retirement savings or an employer pension.

There are a number of savings and investment options available to help you save for your retirement.

These include:

  • Tax-Free Savings Accounts (TFSAs)
  • Registered Retirement Savings Plans (RRSPs)
  • Annuities

Speak with a financial professional to figure out what savings tools and products would be best for you when saving for retirement.

Learn more about retirement planning.

Don’t buy things you can’t afford in the long term

Expensive items such as cars and houses have long-term costs that you need to consider.

For example, if you buy an expensive car you may have to pay more for insurance, gas and maintenance than you would for a less expensive one.

Make sure you consider all of the long-term costs related to a big purchase before spending your money.

Tax implications for your money

You may have to pay taxes on the lump sum payment you receive. This means that you will need to keep some of the money to cover taxes at the end of the tax year. Consider speaking with a financial advisor or tax professional to help you figure out if you’ll have to pay tax on your money.

Learn more about amounts that are not taxed.

Deposit insurance

Deposit insurance protects your savings if your financial institution goes out of business.

You don’t have to apply or pay for deposit insurance. The Canada Deposit Insurance Corporation (CDIC) automatically insures your eligible deposits up to $100,000. CDIC insures deposits held in savings and chequing accounts with most federally regulated financial institutions.

Find a list of the Corporation’s member institutions and more information about deposit insurance.

Most credit unions and caisse populaires are provincially regulated. Each province offers its own deposit insurance on accounts held at these institutions.

Find out more about deposit insurance in Canada’s provinces.

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