There is nothing like the feeling of getting an unexpected sum of money. That joy is magnified when the amounts run into six, seven, eight digits, or more.
Of course, the greater the amount you receive, the greater your stress. In fact, there is a stress-related disorder called "Sudden Wealth Syndrome." That syndrome can lead recipients to do things that ultimately threaten their good fortune and financial well-being, and may leave them worse off than before they received the money.
There are many stories about lottery winners who went broke or former big ticket professional athletes and entertainers who struggle to pay rent. Whether you've just signed a multimillion-dollar contract or won the lottery, here are some tips that will help you to keep your newfound funds and grow your wealth responsibly.
Key Takeaways
- Receiving a windfall can be a blessing but only if you keep it personal and hire a financial team that has your best interests in mind.
- Family and friends can often be the biggest threat to your sudden wealth; be careful who you trust with such information.
- A slow-and-steady approach to stocks and other investments is a proven strategy.
- Avoid get-rich-quick schemes.
- Diversify your wealth, and be wary of making large purchases that might tip off others to your financial advantage.
1. Understand Your Windfall
Sit down with your significant other and read carefully every document associated with your windfall. There may be lots of legal wording and fine print. Read through it all. Highlight areas that you don't understand or have questions about. Use the internet to research answers.
Smart internet marketers will have purchased many of the words and phrases you will be searching on so be careful about the links you follow. Don't give out your name or other identifying information. By doing this homework, you will be better prepared for the next step.
2. Assemble Your Team of Professionals
Should you receive a large amount of money and you're unsure how to handle it, think about getting help from experienced financial professionals. Start your search for competent professionals by asking trustworthy friends with wealth who they would recommend. Go online and see what broad leads you get.
Do Your Research
Look into the backgrounds of financial professionals that you seriously consider. Get to know something about them and their practice (e.g., education, work experience, length of service, levels of wealth managed, complexity of the affairs of current clients). Ask for references.
For detailed background information:
- The state bar association can provide disciplinary information on attorneys.
- The state board of accountancy can provide information on accountants.
- The Financial Industry Regulatory Authority (FINRA) and the United States Securities and Exchange Commission can provide disciplinary information on investment professionals, as can your state's financial and insurance regulator.
Check Professional Organizations and County Clerks
Combine this with research on the websites of professional organizations such as the CFP Board for financial planners and the AICPA for CPAs. There you can learn about violations of each organization's standards of conduct.
By visiting the sites for FINRA and the other organizations mentioned, you may also find additional financial and investment professionals who you feel are worth contacting.
Also, research their names and corporate identifiers at the county clerk's website to learn about liens, foreclosures, and judgments.
Last but not least, a targeted internet search of their names, business names, and names of partners can be helpful in filling out a picture of a professional.
Review engagement letters carefully and make sure that you're comfortable with the proposed relationship. Be certain that you understand any services offered, how they may benefit you, and the fees charged for them.
When looking for financial assistance, seek out financial professionals who are fiduciaries. Fiduciaries are legally required to act in your best interests. Some financial advisors are fiduciaries, while others may not be. So be sure to ask.
3. Develop a Comprehensive Financial and Life Plan
Many organizations talk about their planning capabilities. They show nice pictures of couples walking in the sand or happily rocking in a hammock. Such marketing materials can set the right tone for the conversation. However, their plans may be cookie-cutter, meaning the specifics they propose are the same for all clients.
Sure, some standardization is good. Years of research have taught investors and financial professionals important lessons about investing and managing wealth. Those lessons can yield low cost, highly efficient portfolios that can meet an investor's risk tolerance and long-term needs.
Insist on Solutions Tailored to Your Needs
However, remember that your needs come first and they may be very different than others, due to your outsized wealth. You may have a range of needs, some of them more complex than you ever imagined, and unlike those of people of even moderate wealth.
Therefore, don't hesitate to make clear that your financial plan can't be the simple output of a software program used for all clients. The professionals that you select must address all aspects of your financial needs and goals. And your plan should be designed to reflect the life you have in store for you and your family.
From the amount of income you want and the type of life you will now lead to protection of capital and charities you hope to support, your financial team needs to be capable of providing the full scope of services you require.
4. Be Wary of Friends and Family
It's best to keep news about your newfound wealth under wraps, if possible. If not, it may attract requests for money from old and new friends alike, as well as people you don't even know. Estranged family members may pop up out of nowhere. Athletes and lottery winners experience this frequently.
In fact, it is quite common for financial advisors of athletes to put their clients on a salary and advise them to direct requests for money to the advisor. This can be good for basic budgeting purposes and it also can put some distance between you and the person seeking money.
Also, depending on the amount of your new wealth, you may find yourself exposed to frivolous lawsuits and threats. Your safety, and that of your family as well as your wealth, may become paramount. That's another aspect of your life that your team of professionals must be prepared to help you handle.
5. Resist Large Purchases
In the beginning, you may be tempted to spend loads of money on things you've not been able to afford before. Try to avoid that particular allure of money. Take care of taxes on the gain, pay down debts, take a small vacation—but don't make too many big changes all at once.
Consult with your professional team. Take the necessary time to reflect on your good fortune and your position as a steward of the wealth.
What Should I Do If I Get a Large, Sudden Windfall?
As a suggestion, don't announce the news except to your immediate family, avoid making large purchases, and put the money in an interest bearing account (e.g., high-yield savings or Certificate of Deposit) until you can get appropriate financial planning and investment advice.
Should I Pay Off Debt With Unexpected Money?
Paying your current bills and existing debts would probably be a wise first step and use of money that you receive unexpectedly.
Should I Build an Emergency Fund With My New Wealth?
Everyone, no matter how little or how much money they have, should open an account that holds savings to be used strictly for unexpected events and emergencies. So, yes, if you don't yet have one, use some of your new wealth to fund such an account. An amount equal to a year's worth of expenses in a liquid investment that pays interest would be a smart benchmark for those with substantial funds.
The Bottom Line
If you have received a major amount of sudden wealth, congratulations. After reflecting on your good fortune, take the steps necessary to protect and enhance it.
Consider getting the expert help of financial, legal, and tax professionals who can work together on your behalf to manage your money for the way you plan to live your life, and perhaps for the good of others, as well.
