‘I have £176,000 in cash – what do I do with it?

Our reader inherited a large sum but has always been ‘bad with money’. Tom Haynes steps in to help out

By her own admission, Eliza Flynn is useless with money. So when a £176,000 inheritance landed in her bank account after her mother died, she put it into a current account, where it remains.

Her father also gave her an east London flat 12 years ago, and now the scale of the assets at her disposal terrifies her. “I think what scares me is that I don’t understand it – and I’m scared of losing it, so I do nothing,” said Ms Flynn, a mother of three. “It sounds ridiculous, but I was always told I wasn’t good at maths and that’s led me to believe that I’m not good with anything to do with numbers, including money.”

Ms Flynn, 40, is on maternity leave but ordinarily works as a personal trainer, which brings in around £1,600 a month. In previous roles in advertising she earned up to £50,000 a year, but she believes she has no accrued pension pots. The east London flat is tenanted and brings in £1,400 a month. Aside from that, and the £176,000 in a current account, she has £118,000 in a Barclays Smart Investor portfolio and £16,000 in her business account.

She lives in her husband’s flat, on which he pays the £1,000-a-month mortgage. One suggestion is they use the cash to upsize to a house more appropriate for their family – one with a garden. Conscious that the large sum of money is being eroded by inflation, Ms Flynn wishes to put it to work. She would like to set up a business she can run during retirement, but also wants to set up a sustainable income to last through her old age. She also wants to leave her three children a £250,000 inheritance each, while having enough cash for at least one long-haul holiday a year with her family. Next year she would like to visit Asia to see relatives.

The family also need more help around the house. A nanny visits twice a week, but with a new baby and two young boys she is often exhausted. More than anything, Ms Flynn hopes to overcome her fear of money and gain the confidence to manage it herself.

Sean Irwin

Independent financial adviser at Clarity Wealth Management

The most encouraging part of your situation is when you say you want

Eliza Flynn, below, would like to travel to Asia using some of her savings. Pictured, Singapore to have more confidence to make your own decisions even though you’re terrified of money. I’ll let you into a secret: so are most people – they just don’t admit it.

Merging your finances with your husband’s is a good idea and will be more efficient for you both. But you should talk it through first.

Sometimes people can be reluctant to merge their finances because they are scared about losing independence. In most of these cases the other partner is too busy doing the numbers and hasn’t a clue why the other partner is so reluctant. If this is you, be honest about it. The final decisions will be better for you both as a result.

If you haven’t already, please both make wills or ensure that your current wills are up to date; get lasting power of attorneys in place. Make sure you have enough insurance in place to cover either of you in the following three events: dying, getting a critical illness, or being unable to work.

Ensure that, after you’ve used your cash for other stuff, you’ve still got about 12 months’ household expenses worth of emergency cash – or whatever you feel comfortable with, if more.

I like the idea about paying off your mortgage. It’s a good idea because, after tax, the interest saved from the mortgage is likely to be more than is available on a cash savings account. Also, paying off your mortgage will make your complex affairs a little simpler. It should also make the thought of investing part of the cash in the stock market less worrying.

You should use the £1,000 freed up to pay for childcare. This will enable you to concentrate on your personal training business. Even at 40, your largest financial asset is your future earnings capacity, so this is a valuable long-term investment.

In the meantime, you ought to move the cash sitting in the current account. It will be earning little or no interest and the amount over £85,000 is not covered by the Financial Services Compensation Scheme. It’s easy to spread this cash among different banks so that it is all covered by the scheme and earn a reasonable rate of interest.

Finally, I’d be surprised if you didn’t have any pensions. Pensions auto- enrolment started 10 years ago, so you might have some small pensions that you don’t know about. Fortunately, it will soon be easy to track down your pensions (including the state pension) using a government portal called the Pensions Dashboards.

Tim Page Chartered financial planner at Page Russell

As Ms Flynn is 40 she should be saving for retirement. Although she wants to fund later life by working, she may get to retirement age and have a change of heart.

Having a pension is important. Ms Flynn already has a Barclays Smart Investor account, which does also offer the option of opening up a pension. It would be helpful to have all her investments together so she can see her overall financial situation with more clarity.

However, she may not wish to take the same investment approach for her pension as she does for her Isa and other investments. This is because she will not be able to access her pension for at least 15 years and can therefore take more risk with her investments. She will be unable to get her state pension until 68, so having a personal pension is vital if she wants to retire before this age.

Ms Flynn will be able to save up to £40,000 a year into her pension, including tax relief. Unfortunately, she will not be able to use “carry forward”, which allows a saver to use previous years’ unused allowances, as Ms Flynn was not saving into a registered pension scheme during these years.

She wants to leave her three children £250,000 each. As she does not currently have £750,000 in cash, she may wish to take out a life insurance policy for herself or with her husband that does this. She may consider taking out a relevant life policy via her company; her company would pay the premiums and they would be deemed a taxdeductible expense, which would help lower her corporation tax bill if her company is limited.

The same is applicable to any pension contributions she wishes to pay from her company.