Suddenly find yourself winning the lottery or with an unexpected inheritance? Or maybe you sold your company for a surprising amount. Managing sudden wealth includes both mental and financial considerations. So while it may seem like a dream come true for some, it can be detrimental to those who don’t know how to manage the sudden event.. Here are 12 steps to help you survive and thrive:
1. Trust Your Gut – But Prepare to Work With Others
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. You might feel the urge to immediately enjoy the windfall — to make spontaneous or impulsive purchases and choices because you now have the means — but your money won’t last with spending habits like that. You’ve probably heard plenty of sudden wealth stories about people who won the lottery and found themselves flat broke not long afterward. It’s tempting to spend, but it’s far more responsible to plan, and unless you’re a seasoned financial expert, you can’t do it all on your own.
Stay involved with your financial, legal and tax situation with a team in place to support you. Make sure they’re well-equipped to offer sound advice that’s backed by expertise and certification. Ensure that you’re working with a CERTIFIED FINANCIAL PLANNER™ who is professionally obligated to act in good faith on your behalf and isn’t paid on commission from the products they want to sell you. Seek out professionals who have experience working with people who don’t know what to do with sudden wealth; they will already have knowledge of things you can’t anticipate, like sudden wealth traps, risky investment choices or managing changes to family relationships. 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 (and that’s an investment you want to make).
2. Hire Legal, Tax and Financial Professionals
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. (Remember that each sudden wealth event comes with its own tax liabilities and requirements.) A wealth manager can help with investment and income strategies, financial planning and asset protection, income tax planning and insurance, and risk management.
Remember that you’re hiring them. When done responsibly, you’ll end up working with each of them on a long-term basis, so you want to make sure you’ve formed the professional team that’s best for you. Be choosy. Take the time to select advisors with an excellent professional reputation and values that align with your own. Consider how you feel while learning about their service, how they respond to your questions and concerns, and whether they leave you with feelings of ease and security. Take stock of their communication habits: Are they easy to reach? Do they return your calls? Do they listen to and address your needs? Each advisor should be independent of the other (although it might be beneficial to ask your trusted team members for referrals if you find yourself needing one). Tap into your advisors as guides when new decisions have to be made.
3. Make a List of Goals
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. Give yourself time to adjust to your new situation. Put your windfall in an interest-bearing liquid investment account and let it sit for three to six months. Use that time to re-evaluate your values, dreams and aspirations. Consider what you’ve accomplished thus far, compared to goals that are already in progress. Ask yourself how this sudden wealth can provide the security you need while helping you achieve what you’ve always wanted.
It’s similar advice that we give folks who are approaching the retirement chapter of their life: Now that you’ve got time and resources at your disposal, how will you make the most of both? Discover your wants, but prioritize your needs. Avoid bad investment decisions and solicitations from relatives. These practices can help avoid overspending.
4. Calculate Your New 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. Put Your Plans in Motion
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. That might look like easing the burdens of loved ones, engaging with charity and philanthropic organizations, or investing in yourself and your family.
With sudden wealth, 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 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. Let the professionals do what they do best, but always make sure you know where you stand financially. Typically, that means checking in every quarter to monitor your net worth, cash flow, and investments.
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.
9. Consider Additional Professionals to Meet Your Needs
Your core team, to help see you through your sudden wealth event, might include more than those listed above. If you’ve come into wealth in a public way, you may need a professional to help you manage the media attention. A public relations representative will be able to field press inquiries, control the narrative around the news and provide support for dealing with the sudden attention. Likewise, you might find yourself needing security for you and your family at public events, depending on the circumstances of your situation.
You might also find yourself needing the support of a mental health counselor. Given the realities and impacts of sudden wealth syndrome, checking in with a medical professional to discuss your thoughts, emotions and actions might prove beneficial to your well-being. If your religious faith plays a key role in your life, you might also consider the guidance of a spiritual counselor.
10. Protect Your Privacy
With sudden wealth events, oftentimes recipients hear from friends, relatives, acquaintances, former coworkers or anyone with whom they crossed paths at some point. They “come out of the woodwork,” as the saying goes, and they may not come with the best intentions, causing you nothing but grief and conflict. Especially today, it’s easier than ever to get in contact with someone. Consider only sharing contact information and communications with those you love and trust, and safeguard yourself against new people and people you might not know or remember. If circumstances call for it, you might even consider getting a new cell phone with a number you give only to them. z
Review all of your social media accounts and remove your contact information, including your cell phone, home phone, email and mailing address. Ask your spouse and your immediate family members if they would be willing to do the same. If you have contact information in your email signature, be sure to remove it — or simply get a new email address. (If the situation is dire enough, you might consider moving homes entirely.)
If you have your credit or debit cards saved to websites like Amazon, Google or Apple, be sure to remove them to prevent hacking. Update your internet and mobile security so that you’re less vulnerable to cyber attacks. That includes updating passwords and perhaps installing new firewalls and software. Remove files from your cloud storage that might contain sensitive or personal information, especially if it contains your Social Security number or banking information.
11. Keep Learning about Money
In the wake of a windfall, you should be hiring a team of professionals to guide you through the wealth management process. But that doesn’t mean you shouldn’t continue learning on your own. If, perhaps, you weren’t the most financially savvy before you found yourself adjusting to sudden wealth, that’s OK, yet it’s smart to keep yourself informed about the topics your team will discuss with you. Equip yourself with the very basics of financial terminology, banking trends, financial industry shifts and major policy changes. Read books that outline the building blocks of finance and economic principles. You might even consider enrolling in an online course to ensure your knowledge is sound. You don’t need to earn a degree, but having a general understanding of finances will enhance your relationship with your wealth management team.
12. Avoid Sudden Wealth Syndrome
Building wealth over a period of time is drastically different from the responsibility of managing sudden wealth. While wishing to hit the jackpot is common, the reality of actually taking home the jackpot is rare and it doesn’t come with an operator’s manual. Sudden wealth, like winning big in Las Vegas or figuring out what to do with 500k windfall, can be a life-changer.
The psychology of sudden wealth has been well-documented, too. Folks who find themselves managing sudden wealth might start retreating from social events, suspicious of anyone who tries to give them financial advice, overwhelmed with feelings of guilt rather than pleasure, or even paralyzed by indecision and a lack of knowledge for navigating their new circumstances.
Look to the Professionals
If you’ve come into a large sum of money or anticipate doing so, we’d be happy to answer your questions about managing it. Schedule a consultation with us today.
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.
