In summary

Welcome to the era of the great wealth transfer! As a beneficiary, you are about to navigate the exciting yet challenging journey of managing significant assets for the first time. This guide is here to equip you with the essential knowledge and strategies to ensure your inherited wealth not only lasts but grows.

We will cover the foundations of financial management, securing your financial future, and planning and investing for major life events.

1. Foundations of financial management

Starting with the basics, understanding your income and expenses is crucial for effective financial management.

• Understand your income and expenses: Use a budgeting tool or app to track your expenses. Consider the 50/30/20 rule: allocate 50% of your income to essentials (rent, bills, food), 30% to non-essentials (dining out, entertainment, holidays), and 20% to savings or debt repayment. Avoid lifestyle creep – where your expenses grow as fast as, or faster than, your income.
• Build and maintain an emergency fund: Aim to save 3-6 months’ worth of living expenses for unexpected costs. Keep your emergency fund in a high-interest savings account, separate from daily spending. If you need to use it, prioritise replenishing it quickly.

2. Securing your financial future

Protecting your financial future involves strategic planning and insurance to safeguard against unforeseen events. Even if you are young and healthy, it is hard to predict what the future might bring so it is always better to be safe than sorry.

• Protect your financial future with insurance: Consider life insurance, income protection, and critical illness cover for financial security in case of unexpected events. Life insurance is crucial if you have dependents. Income protection insurance can cover your living expenses if you are unable to work due to illness or injury. Review your insurance after major life events like marriage, buying a home, or having children.
• Create a will: Make sure you have a will in place to specify how your assets will be distributed after your death. This is crucial for protecting your loved ones and ensuring your wishes are followed.
• Plan your estate: Consider who will inherit your estate and how your assets will be managed. This includes making decisions about your pension and other long-term investments. Consulting with an estate planner can help you navigate this (sometimes) complex process.
• Tackle debt strategically: Focus on paying off high-interest debt first, such as credit cards or payday loans. For lower-interest debt like mortgages, maintain regular payments while balancing other financial goals. If debt feels overwhelming, seek advice to create a manageable repayment plan. Consider options like debt consolidation or balance transfers to reduce interest costs.

3. Planning and investing for life events

Planning for major life events and investing wisely can help you achieve long-term financial goals.

• Plan for major life events: Significant life changes, like buying a home, marriage, or starting a family, can impact your finances. Save for a deposit, understand all associated costs, and consider how mortgage payments fit into your budget. Merging finances in marriage requires open communication and shared financial goals. Adjust your budget for new responsibilities when starting a family.
• Invest for the long term: If you do not need access to the money for at least 5 years, consider investing to meet your long-term financial goals. Starting early can benefit from compound returns over time. Contributions to a pension or individual savings account (ISA) could grow significantly over long periods. If your employer offers a pension scheme, contribute enough to maximise any employer match.
• Enjoy life – money is just a tool: While managing your finances, don’t forget to enjoy your money now. By earmarking money for the future and ensuring you are putting enough away, you can afford to do the things you enjoy now. Whether it’s holidays, meals out, or hobbies, remember that money is just a tool to design the life you want to live.

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References

Source: https://www.brooksmacdonald.com/resources/insights/inheriting-wealth-your-guide-financial-success