What to do if you receive a financial pay-out or lump sum

pension gap, piggy bank, financial, saving moneyReceiving a sum of money that you weren’t expecting can be both exhilarating and daunting at the same time. And unless it’s a lottery win, 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, Louise Woollard – Principal of Brighouse-based Louise Woollard Financial – shares her top tips for what to do if you receive a lump sum, and  why working with an adviser can help to ensure longer-term financial objectives are met.

What to do first…

Firstly, it’s sensible to move the money to a separate bank account as soon as possible and 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 daily money. This will also buy you some time to think, which is crucial if you are going to make some sensible decisions regarding how to use the money.

What about tax?

Do you have any tax to pay on the sum? If you do, it’s best to save this money in a separate account which is available to access when the tax is due. Also, if you don’t know about the tax position, definitely invest in some advice – you wouldn’t want to be in the position of owing tax and not having the money to pay the bill.

What about liabilities?

Do you have any liabilities? Credit card debt and loans can charge high interest rates, so you may be better off settling these and reducing your outgoings.

Do you have an emergency fund?

It’s advisable to retain at least three months’ 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, it’s important to think about what you plan to do over the next five 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 you need over the next half a decade should also be kept as cash and be easily accessible.

Longer term objectives…

If you have money left after addressing your future needs, you can then consider longer-term options with your cash. However, such investments carry a risk – 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 – and help you map out how to get there.

A financial planner can really help when it comes to ensuring you can 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, there are some areas where they can really make a difference…

Avoiding 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 effectively as possible.

Spotting the risks…

When it comes to finances, we all have blind spots and issues 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 make sure you can continue to save for your long-term goals with peace of mind.

Removing 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 sentiment.

In truth, a finance expert is someone to bounce ideas off and to pass day-to-day money management to, so that you can focus on your strengths.

Considering the future…

Planners will also encourage you to see the bigger picture. With the use of a cash flow model, they can help bring the future to life – it’s often easier to engage with material if it’s presented visually.

In addition, they can provide insight which helps you see that time in the market is far more important than timing the market.

Choosing a strategy and sticking with it feels much simpler and more attainable when you work alongside your dedicated adviser. And this way, you are far more likely to achieve your longer-term financial aspirations.

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.

Louise WoollardAbout the author

Louise Woollard is a chartered financial planner and Principal of Brighouse-based financial advisory firm, Louise Woollard Financial.

With over 20 years’ experience within the financial advice and wealth management industry, Louise enjoys inspiring people to use their resources to achieve their goals – helping them to create economic security for themselves and their loved ones.

Her areas of expertise include inheritance and wider tax planning, wealth generation, retirement funding and covering the costs of care.

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