Here at Thrive, with redundancies and settlement agreements sometimes resulting in large lump sums for some individuals, we asked the wonderful Louise Woollard, from Louise Woollard Financial to prepare a guest blog for us. Here she talks about what to consider and how to plan when such sums are received.
Receiving a sum of money that you weren’t expecting can be exhilarating and daunting at the same time.
Unless it’s a lottery win or an inheritance it could be the result of something negative that has happened in your life.
Making good decisions when it comes to money can have a significant impact on your future. Here are my tips for what to do if you receive a lump sum.
What should you do first?
Move the money to a separate bank account as soon as possible. Ideally, make this an account that’s not visible on your main banking app every day. This will mean you’re not tempted to immediately spend any of it and it will also become separate to your everyday money. This will also buy some time to think which is crucial if you are going to make some sensible decisions regarding how to use the money.
What should you do about tax?
Do you have any tax to pay on the sum? If you do save this money in a separate account which is available to access when the tax becomes due. If you don’t know about the tax position get some advice. You wouldn’t want to be in the position of owing tax and not have the money to pay the bill.
What about liabilities?
Do you have any liabilities? Credit card debt and loans can charge high-interest rates – you may be better settling these and reducing your outgoings.
Do you have an emergency fund?
Do you have an emergency fund? It’s advisable to retain at least 3 months of expenditure as an emergency fund. This means that if the unexpected happens in the future you’ll have some money to fall back on that you can easily access.
What are your plans for the next five years?
Once you’ve looked at your liabilities and emergency fund consider what you plan to do over the next 5 years. Will you require any of the money? Are you planning to retrain, do you have home improvements that you want to undertake? Any money required over the next five years should also be kept as cash and accessible.
If you have money left after addressing these needs, you can then consider longer-term options with your cash. However, longer-term investments come with risk and this is where financial advice can add so much value. Working with a financial adviser can help you identify your goals and dreams for the future.
A financial planner can really add value when it comes to helping you become best placed to meet your money-related objectives. It goes without saying that they will help select the best investments for you in line with your risk profile.
However, the following areas are where they can really make a difference.
How to avoid mistakes.
A good planner will help you mitigate potential errors. For example, if you forget to remortgage, you may pay considerably more interest over the term of your mortgage. Having too much of your money in illiquid investments could also cause you problems. A financial planning expert will assist you in avoiding costly mistakes and make sure your hard-earned money works as hard as possible.
How to spot the risks.
When it comes to finances, we all have blind spots and risks that we perhaps haven’t considered. Whether it’s writing a will to ensure that your money ends up in the right hands, or setting up a lasting power of attorney* – so that if you are unable to manage your own finances you have someone else who can legally act – finance specialists have these on their radar.
As another example, you may be the only earner in your family – what would happen if you were unable to work or became terminally ill? Skilled planners will assess these risks and offer solutions that ensure you can continue to save for your long-term goals with peace of mind.
How to remove the emotion.
Emotions and money don’t mix well. Sometimes it’s hard to keep your nerve if you have made a decision alone and markets change, but an effective planner will also help you avoid making choices based solely on emotion.
In truth, a financial planner is someone to bounce ideas off and to pass day-to-day money management to, so that you can focus on your strengths.
How to consider the future.
Planners will also encourage you to see the big picture. With the use of a cash flow model, they can help bring the future to life – often it’s easier to engage with material if it’s presented visually. In addition, they can provide an insight which helps you see that time in the market is far more important than timing the market. They’ll support you in choosing a strategy and sticking with it. And this way, you are far more likely to achieve your longer-term financial aspirations.
At Louise Woollard Financial, we believe that building a relationship with a planner that you trust can be truly rewarding in so many ways. If you’d like to find out more, please contact our friendly team!
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can, therefore, go down as well as up. You may get back less than you invested.
*Will writing and Powers of Attorneys involve the referral to services that are separate and distinct to those offered by St. James’s Place and are not regulated by the Financial Conduct Authority.
Louise Woollard Financial is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. Louise Woollard Financial is a trading name of Louise Woollard LLP.