Smith, 66, sold the prized collection of 75 lots, which included league title, FA Cup, UEFA Cup and European Cup winners' medals.
There was also a full England cap and 20 shirts worn during big games.
"I'm getting old and the money is of more use to me now than the medals. This is about me putting my family first," said Smith.
His collection went under the hammer at Bonham's Chester showroom.
Smith said his family were more important than his memorabilia
Among the shirts up for grabs was the one he wore when he scored a rare headed goal against Borussia Mönchengladbach in the club's 3-1 European Cup victory in Rome in 1977.
Former Liverpool manager Bill Shankly once referred to Smith saying: "Tommy Smith wasn't born, he was quarried."
Smith joined Liverpool as a schoolboy in May 1960 and made his debut on 8 May 1963.
"I had a wonderful career but the memories I've got are more important to me than the medals and the shirts," he said.
Smith remains fiercely proud of everything he achieved for the Reds after signing as a schoolboy under Bill Shankly in 1960.
The tough-tackling defender made 638 appearances up to 1978, winning four league titles, two FA Cups, two UEFA Cups and the European Cup.
The 66-year-old former Liverpool skipper insists the sale isn’t borne out of financial necessity. Instead it’s a practical solution as he plans for the future.
“It’s something I’ve been thinking about for a long time,” he said.
“I had them all packed up in the loft and then a few years ago I moved them to a bank for safe keeping. It’s not as if I’ve been used to having my medals all out on display at home and seeing them every day.
“I hadn’t seen them for about two years as they were in the bank and I just thought what the hell are they doing there?
“They are worth an awful lot of money but no-one is benefiting from them all just sitting there. It’s not helping me and it’s not helping my family.
“It was absolutely brilliant to win all those medals. I had a wonderful career and everyone knows I gave everything I had for the club.