What to do with a financial windfall of a million pounds or more is a problem everyone would hope to have. This may come in the form of an unexpected inheritance, a work bonus, winning the lottery or the sale of some family assets. It could be something you knew was coming or may just have fallen into your lap. But however the funds are acquired, the focus will soon shift to managing them.
Suddenly having a large amount of money at your disposal could tempt you into making rash decisions so seeking out professional advice early is a sensible move. A wealth manager can advise you on areas such as cashflow modelling, investments, pensions, charitable giving and tax liabilities. A good adviser can also connect you to lawyers and accountants that would assist you in managing your financial affairs.
Cashflow modelling allows you to map out your income and expenditure and take stock of any assets and debt. You will then be able to create a forecast for your financial future which will help you manage your funds going forward. Paying off any debts may be a priority and would help make sure you are on a sound financial footing before planning any significant purchases. Planning in this way is particularly important for younger people as a large windfall needs to be managed prudently if it is to keep you financially secure over a longer period.
Investing in your future
Once you have a realistic view of your finances, you can then concentrate on the best way to deploy them. Investing is a great option for ensuring your money works hard for you. You may already have an investment portfolio which means this will be familiar territory and you can simply add your windfall to an existing strategy. If you don’t have a portfolio, it would be a good idea to familiarise yourself with how to get started. Investing your money through a standard portfolio is one route to consider but reviewing your pension plan is also wise. You may be financially comfortable now, but planning for later in life will increase your chances of staying that way.
Funding education for children or other family members may also be high on the agenda. Education is valuable and those with the available means will often invest in the best they can afford. But private schooling doesn’t come cheap and it pays to map out what the costs will look like over a multi-year period. Tuition is often the most obvious part of the bill, but accounting for connected costs such as extra-curricular activities and accommodation will help to give you a more realistic total figure. And if you plan on covering the costs of several people’s education, what at first looked like a lot of money can quickly seem insufficient.
The first thing that comes to mind for some with a newly expanded bank account will be that they want to give some of it away. This may be in the form of charitable donations or straightforward gifts to family members. But giving, especially with large sums, can come with tax considerations and it is important to investigate these before pushing ahead.
Is it time to start a business?
Acquiring a large sum of money presents the ideal opportunity to start a business. Anyone with aspirations of working for themselves may want to use the windfall to provide much-needed start-up capital for a commercial venture. Costs such as business premises and salaries all need to be funded and acquiring a significant sum could provide a budding entrepreneur with the ideal cushion to kick-start a new venture.
A final consideration when receiving any kind of windfall is tax. Much depends on how the money is acquired. There will be a considerable difference in tax implications depending on whether it comes as income, inheritance or simply as a gift. Making sure you are aware of your liabilities is important so that you are not stung by any unexpected demands down the line. It is also worth considering the role an offshore trust can play in the protection of your wealth and your financial adviser is well-placed to guide you on setting one up.
At London & Capital, we take pride in helping you make the most of your wealth so you can create the best future possible for you and your family.
