5 Tips for Managing a Sudden Financial Windfall
As a generation of Americans grows older, a considerable amount of their personal wealth is transferring to younger family members. In fact, over 60 trillion dollars is expected to change hands in the next 25 years.
You may acquire sudden wealth in other ways, such as the sale of a business or property, divorce settlements, winning the lottery, money from an insurance claim, or profits from investments. Regardless of how you receive your newfound money, it’s important to be prepared to handle it properly.
What is Sudden Wealth Syndrome?
Sudden Wealth Syndrome is described as a psychological condition that causes people to experience distress when they suddenly acquire a large sum of money. This could result in poor spending decisions, like shopping sprees, investing in questionable schemes, and sharing their wealth unwisely with friends and family members.
When you come by a financial windfall, it’s important to slow down and carefully consider your next move. Here are 5 tips for making sure your newfound wealth lasts for generations to come.
1. Take Stock of Your Newfound Wealth
The first thing you should do is get a clear idea of what you have acquired. If you have little experience handling wealth, it may feel like you have all the money in the world. Remember that Americans are living longer lives, so it’s helpful to consider how much money you’ll need to live your desired lifestyle now and through your retirement.
It's also important to understand exactly how much you have overall. This includes unpaid taxes and outstanding debt. It’s important to realize that money, no matter how large the sum, is quickly depleted once you begin spending it. It's important to learn to live off the returns that you make out of investing your money, rather than spend your capital.
While it may seem like this sudden wealth is your cue to sit back and enjoy a life of luxury, it doesn't often work that way. Money is more than just a ticket to a better life. It requires work and responsibility to ensure that it lasts.
2. Keep It a Secret
When you receive sudden wealth, it may be in your best interest to keep it a secret. Though sudden wealth can be great news for you and your family, being discreet can help avoid the pressure of giving your money to family, friends, or charities who may be seeking a piece of it.
If you choose to keep your sudden money private, it’s important to continue to do the things you enjoy. Those who come into sudden money can become overwhelmed, so make sure you carve out time for activities that can alleviate any stress.
3. Create a Financial Plan
Talk to a financial professional about the kind of lifestyle you hope to have, the charities you are interested in, the friends and family members you hope to help, and the inheritance you hope to leave to your heirs one day. It's important that you gain a realistic idea of what exactly you can afford to do, while still having the money last you for a lifetime.
4. Be Wary of Your Charitable Instincts
When you come by a great deal of money, you may want to give generously. Generosity is a commendable quality, but you don’t want to get too carried away.
Before making any decisions to help friends or family with money, get advice from a financial professional who can make sure that your ideas are sustainable. Far too many people have become bankrupt simply by being overly charitable or overspending.
5. Find the Right Team of Professionals
When you begin to search for ways to invest or safeguard your money, you will come up against plenty of heavily promoted websites managed by questionable financial businesses. It's important to tell them apart from the true, reputable consultants. Review their certifications, speak with their references, and ask them the right questions.
If you receive referrals from friends, family or other financial consultants or your accountant, vet them for their professional qualifications and experience. Make sure that they have experience dealing with clients who have the kind of wealth that you do.
If you need help managing a sudden windfall, know that we are highly experienced with these situations and more than happy to help you navigate your newfound wealth. We can customize a financial strategy that will allow you to manage your finances properly by giving investment advice that will grow your savings and help your extra income last.
This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Please note, changes in tax law or regulations may occur at any time and could substantially impact your situation. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was created by The Oeschli Institute to provide information on a topic that may be of interest.