What would you do with an £80k windfall?

One of my clients received an interesting phone call last month that left him emotionally conflicted. The news was unforeseen, as his long-lost relative had recently passed away and left him and his sister £80k each. That’s a lot of money.

But it was also money that my client wasn’t in desperate need of. He already had a robust retirement and investment strategy that was in fruition. He was financially comfortable and would be for the foreseeable future. 

All of the priority boxes were ticked, making this £80k more of a bonus than anything. 

However, this still inspired a range of emotions. On the one hand, my client saw it as a pleasant surprise since, after all, it’s not very often that £80,000 falls from the sky and lands in our bank accounts. 

But on the other hand, there was a small feeling of guilt and he couldn’t pinpoint where it stemmed from.  

I’ve seen this many times before with my clients and it’s always interesting to examine how windfalls are treated differently to other sums of money. When money is inherited it’s not uncommon to feel that it’s unmerited. Some people value money more if it comes with a sense of achievement. 

Others have less guilt, but are more concerned with how it’s spent - the lump sum is seen as different from other money: something sentimental that deserves respect. 

My client was in both camps, which made him unsure about what to do with it

During a long discussion we talked and probed the different options available to him. Looking at frugal and cautious approaches, and how the money could support him in the future and the present. 

Eventually, we opted for a diversified approach: £40,000 to be put forward to bolster his pension, £20,000 in a cash ISA in case he needed access to that cash, and £20,000 in premium bonds. We allocated the cash for post-lockdown fun, and the premium bonds for the Ashes Tour to coincide with retirement.

Splitting these into three different categories created a balance between building for the future while having the freedom to pursue any interests that might arise in the present. It was an equilibrium of pragmatism and spontaneity. 

Should an exciting venture or new interest arise, my client will have the freedom to pursue it without jeopardising his retirement savings (assuming that the cost doesn’t exceed 20k). There’s always another experience, another adventure and another activity we’d love to tick off our bucket list. Now my client has the freedom to do so.

But here’s what’s interesting about this approach - it provided an emotional benefit in that my client was able to mentally embrace the windfall. It was almost as though the placing of this money in three different areas provided some tangible value that he could further appreciate. 

In the old days you might remember that people do this with their bills by inserting money into different jam jars or envelopes to feel more organised. This form of mental labelling is what we achieved through this planning approach. My client felt both relieved and satisfied because he could clearly visualise exactly where this lump sum was going. 

Through this approach we were making the most out of the windfall by investing it prudently into avenues that would open more doors for my client. But crucially, we were also able to manage the emotional aspect of how to treat that money – by labelling it in this way, he would always be conscious of where it was, and what it was doing.

Has the lockdown given you a mini windfall?

Perhaps we could compare windfalls with lockdown savings… Despite the discomfort and frustrations of lockdown, many of us are actually in a stronger financial position. Not being able to socialise, eat out or go on holidays has made us all spend a lot less. 

None of us planned to be in this elevated financial position – but here we are! What’s interesting is that I’ve now received several enquiries about whether my clients can make big changes to their existing plans as a result of these unexpected circumstances. For example, whether they’re able to retire a few years earlier than planned – or keep going a bit longer (for some being in the house has been like a mini retirement and persuaded them they’d prefer to get back to work!).

One client phoned to tell me that he’d bought tickets for every match between England in France in the 2023 Rugby World Cup and asked what would the impact be on his retirement plan if he could pulled the date back a year so he could spend three months in France.

So your this ‘lockdown windfall’ could also be potentially life changing. It could help you get closer to your long-term ambitions. There’s also the option to mentally ‘separate’ this money so you always remember it as the bonus that 2020 – the strangest of years – gave you. 

Please give me a shout if you’d like to discuss this.