An influx of income can bring opportunities as well as potential difficulties, so managing newfound wealth proactively should become a priority. From overpaying on your mortgage to enhancing your investment strategy, here’s some important information to get you thinking about how you could try and make your money work harder.
The drawbacks that come with rapid wealth are well known. In fact, they have become so prevalent that psychologists recognise it as a condition: Sudden Wealth Syndrome.
Few of us will win the lottery, but windfalls come in many other forms: a large inheritance, a bonus, or cashing in share options. It can be life-changing and come with unforeseen consequences. You want to make sure that your dream does not become a nightmare by coming up with a financial strategy that works for you.
Inheritances can trigger powerful emotions that can result in poor or risky financial decisions. People who are grieving are suddenly presented with a vast amount of money that they may feel they don’t deserve. It can be emotionally stressful, affect relationships and make managing finances much more complex.
Meanwhile, entrepreneurs and business owners who sell out or cash in may achieve the dream of making their exit and charting a new path. But the switch from being focused on your business 24/7 to being suddenly at leisure can also lead to an existential crisis — and a sense of lost identity. Getting an influx of new money tends to bring with it a new set of vulnerabilities.
One of the first thoughts for many people who come into money is early or immediate retirement. That may be attractive, but your income will have to last you for the rest of your lifetime. You don’t want to outlive it.
4 ways you may want to use your windfall:
Seeking trusted financial advice can help guide you through your new wealth, and help to make sure that your money works for you.
Of course, there is no point in having newfound wealth if you can’t enjoy it. Depending on your personal circumstance it could make sense to set aside a small portion for a dream holiday or a new car. Just don’t attempt to work your way through all the items on your bucket list at once.
One thing you might want to consider if it is right for your individual needs, is to put your windfall into short-term, lower risk investment or savings accounts until you’ve had a chance to think. Although remember with investing, the value of your investments can go down as well as up, and you may not get back what you originally invested.
Gifting money to children or grandchildren can help them with, say, university fees or getting on the property ladder, and is also tax-efficient. You can give away £3,000 a year completely free from Inheritance Tax, while gifts of over that amount are inheritance tax-free providing you survive for seven years after making them.
Donating to your favourite charity is also tax-efficient and creates a feel-good factor. By doing your homework before making any bequests you can make sure that you’re happy about how the money will be used.
In every case, professional financial advice can help you to work through your options.
To talk to us about your increase in funds, we offer a Personal Financial Advice Service. The service can also help you with retirement planning, building an investment plan, estate planning and more. The service is for those with £100,000 sole annual income, or £100,000 in savings, investments or personal pensions
There are no charges for our initial appointment and no obligation to take any of our services or products. There may be fees and charges for any advice or services subsequently provided.
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