Woodruff Financial Planning blog

I turned on the news this morning to see a happy couple in front of the TV cameras having won a huge jackpot on the Euromillions.  This turned my thoughts back to a previous post on Sudden Wealth, which would probably describe the situation of the lucky winners today.

A psychologist was commenting on the effects of such a life-changing event, and in particular focused on issues of how the couple’s life would be different in many ways.  Obviously, most of their financial windfall will be positive, but he was cautionary about how the money would need to be managed, both from a financial planning perspective, and from an emotional standpoint too.

We think that people need to think about their financial goals at all points of their lives, but at times of sudden wealth financial strain can be quite severe.

For many people, this will not be as drastic as a huge lotto win.  But there are many other situations which can bring about a life-changing influx of money.  With this money comes the need to manage your finances.

Think about the following situations:

Sale of a business
You would hope to sell your business for a suitable sum, which after tax would help provide you with enough money to achieve your financial lifestyle needs.  No doubt you would need financial advice on when to actually sell (i.e. when you have enough to retire), but also how to manage the capital to generate a suitable income.

Inheritance
You may come into a significant sum of money which would need management both for capital and/or income.  It can be tempting to spend the windfall, when some sound financial planning will set you on a secure financial future. See our inheritance tax section on our website.

Divorce
This comes with issues for both sides.  Both parties will need to plan how their finances have changed, perhaps making up lost pension benefits or buying a new home.  Of course, if you receive pension benefits from your former spouse as part of the divorce you will need help to manage these new assets. See our leaflet on pensions and divorce.

Critical illness
If you have managed to claim on a critical illness policy then your life will have changed dramatically.  You will probably have a serious and debilitating condition, and would likely have to give up work.  The policy may have been set up to simply pay off the mortgage, but you might have also provided further benefits to help give you an income and/or make alterations to your home.  In any case, you would probably want to have some ongoing advice to ensure that this resource is best used.

Ultimate high earners
In this category might be sports stars or entertainers, who get paid significant sums for their talents; alternatively, directors or city workers might also receive bonuses as part of their package.  For some, they might want to seek a financial planner to help them organise their finances into a sound footing to avert the times ahead when the high income might dry up.

Thinking about those lucky Euromillions winners, I would say 3 things:

1. You should probably avoid the lotto – It could be you, but statistically, it probably won’t;
2. If I won the lottery, I definitely wouldn’t appear on TV spraying champagne everywhere;
3. I also wouldn’t be saying that my life would not change. With a sudden windfall, everything changes, and this needs careful management both from a financial and an emotional perspective.

Click here to download out leaflet on sudden wealth.  You may also be interested in our core services, which aim to help you plan your finances and manage your money.