Suddenly find yourself winning the lottery or with an unexpected inheritance? Or maybe you sold your company for a surprising amount. Sudden wealth means receiving more wealth than you are in the habit of being responsible for and having it happen quickly. While it may sound to some like a dream come true, there are both mental and financial considerations involved with sudden wealth. Here are eight steps to help you survive and thrive:
1. Take Responsibility
To the extent that you are able, do not be afraid to own your sudden wealth. With this great gift, we recommend you take the reins and control your financial destiny. Stay involved with your financial, legal, and tax situation with a team in place to support you. It is essential to listen to the team you ultimately choose, but stay in the driver’s seat and trust your gut. Plus, recognize that management of sudden wealth may take a fair amount of your time, resources, and money.
2. Get Organized
The team you create should consist of a few key members. You will need an attorney to help with estate planning, legal documents, asset protection, ownership, and beneficiary advice. You will need an accountant to help with tax planning, tax return preparation, and federal and state regulatory forms. A wealth manager can help with investment and income strategies, financial planning and asset protection, income tax planning and insurance, and risk management. Take the time to choose advisors with an excellent professional reputation and values that align with your own. Each advisor should be independent of the other. Tap into your advisors as guides when new decisions have to be made.
3. Step Back
One surprising feeling for people who come into money suddenly is that they may feel isolated. The mental shock of receiving sudden wealth can lead to rash decisions. To prevent regret, give yourself time to adjust to your new situation. Put your winnings in an interest-bearing liquid investment account and let them sit for three to six months. Use that time to re-evaluate your values, dreams, and aspirations. Discover your wants, but prioritize your needs. Avoid bad investment decisions and solicitations from relatives. These practices can help avoid overspending.
4. Take Stock of Your True Financial Position
Write down your current assets, liabilities, income, and expenses. Figure out how much you have after you account for everyday living expenses, debt, and other income. Decide if you have enough money to live on and what you want to do. Do you need to keep working? Do you want this sum to grow? Can you afford to give some away?
5. Choose Your Course and Act
Even though you cannot rely on your loved ones to make the best financial decisions nor provide financial advice for you, you can make them a priority when it comes to deciding what to do with your money. During your “stepping back and taking stock” time, you should have discovered your present values and dreams. Now it’s time to pick which ones you want to work toward with your windfall. We have seen people afraid to spend their money, petrified that they may squander it. While it is good to be calculated, don’t live in fear. Just live and move forward to your dreams with intention.
6. Create a Wealth Management Plan with Your Team
Bring your values, goals, dreams, debt, and anything else you thought of during your planning and explain it to your team. Set short-term and long-term objectives with each member. Make sure those include personal goals and investment objectives, so your advisors are aligned with how much growth you expect. Assess your goals and circumstances with your team members so they can tell you what is or is not realistic. Plan your asset allocation. Make a timeline to ensure everyone is on the same page.
7. Implement Your Plan
Now that you have taken the previous steps, it is time to take action on your financial plan. Make sure you have the necessary legal documents drafted with the help of your lawyer. Ensure proper protection of assets. Build your investment portfolio to help your wealth grow. Diversify: Do not put all of your eggs in one basket. Escrow necessary income taxes with the help of your financial advisor. Stay on top of your finances by having regular progress meetings with your advisors.
8. Review Your Plan Periodically
When you have a strong team, your goals should always be in the back of their minds to monitor your progress. Your financial advisor, such as your team at Carnegie, can help you manage your wealth to achieve your goals. We recommend staying involved with your situation to ensure your plan is up to date and going smoothly. Be aware of any changes and unexpected events.
Looking for a Financial Advisor?
If you are currently looking for help with financial planning, contact us. We are happy to schedule an introductory meeting at your convenience.
Don Haisman serves Carnegie Investment Counsel as the Managing Director of the firm’s Ft. Myers office and is a CERTIFIED FINANCIAL PLANNER™. Don’s investment philosophy is derived from his studies of Modern Portfolio Theory—focusing on building individual client portfolios that maximize profits per unit of investment risk.