We’ve all been thrilled by tennis player Emma Raducanu’s lifechanging victory at the US Open. Holden & Partners’ Dominic Clark has been inspired to think about the financial advice needed for those, like Emma, who have received a windfall.
Few had heard of Emma Raducanu last year, and now she is a superstar. Charismatic and talented, she is predicted to become Britain’s first billion dollar sportsperson1. What a staggering change from doing A-Levels! Hopefully, she has a strong team around her to help with all aspects of the exposure, money and pressure that come with such fame.
It got our office talking about what we would do with a windfall, and whilst the fantasy options did get mentioned (mansion or yacht anyone?), we actually came up with some more sensible investing and saving tips that are relevant for anyone who receives a windfall. This applies whether you’re a grand slam winning tennis pro or beneficiary of an inheritance.
This is especially important because so few people my age have received any sort of personal finance education. A windfall, whether it be winnings or an inheritance, can be overwhelming and it can be all too easy to fritter it away.
1) Broaden your horizons
Firstly, it makes sense to work out your priorities and options from the short to long-term. A clear plan across three timeframes will get you on the right track.
- Short-term (5 years and under) – Any short-term savings should factor in spending needs during this period, as well as making sure you have enough available for a ‘rainy day’. Whilst interest rates on cash are at historic lows, which may be off-putting, the money held in cash serves a vital purpose, ensuring that it is readily available should you need it.
- Medium-term (5-10 years) – You might want to take on additional risk with your monies in the medium term. Consider the use of various allowances like Stocks and Shares ISAs, where there is no age restriction on when you can access the funds.
- Long-term (10 years+) – Again, over a long-term period, you have the ability to weather market lows. For young adults, such as Emma Raducanu, this can mean planning for a family, or even as far as retirement and using tax-efficient options such as pensions and Stocks and Shares ISAs.
2) Think sustainably
For Holden & Partners, there are two aspects to sustainability that we consider.
Firstly, it means long-lasting – it’s about ensuring your money lasts for your lifetime, providing freedom and flexibility later in life. The premise of sustainability is linked to ongoing reviews of the financial plan and taking a long-term view.
Also important is the environmental, ethical meaning of sustainability – meeting our needs without comprising the ability of future generations to meet theirs2. Increasingly, younger investors want to use their money to ensure the sustainability of our environment, our economy and our society. By ensuring the long-term future of these, the natural knock-on effect is to ensure their own future. This is at the heart of what Holden & Partners does.
3) Make financial planning a habit
Once a plan is made, it is not set in stone. It’s important to review and refine over time. We suggest a minimum of an annual review to make adjustments based on how your circumstances and goals change.
Part of your plan should be looking at what could happen in the future, building up pots of money to achieve those objectives and using goal setting to achieve those larger objectives that may not have been possible before. We can use cash-flow modelling to enable us to map out your key objectives, for example a house purchase, and then we implement a strategy to try to achieve them.
4) Seek guidance
When it comes to finances, seeking advice from qualified professionals is usually the best route to take. Many people see professional advice as something for the super-rich, or for people nearing retirement, rather than something that they could benefit from earlier in life. However, we believe that the earlier you start planning for your financial future, the better.
The value of investments can fall as well as rise. You may not get back what you invest. Past performance is not a reliable indicator of future results.
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Please note that any thresholds, allowances, percentage rates and tax legislation stated may change in the future. The content of this communication is for your general information and use only; it is not intended to address your particular requirements. This communication should not be deemed to be, or constitute, advice. You should not take any action without having spoken with your usual adviser.