Personal wealth, in many cases is transferred from older family members to younger ones, but this isn’t always the case. Sudden wealth or financial windfall can be acquired in other ways. For example, you could come into newfound money through a business sale or property sale, divorce settlement, winning the lottery, money from an insurance claim, paid out life insurances, or from other investments.
Many of us who aren’t rich by birth aren’t prepared properly to handle newfound money successfully. The sudden wealth syndrome happens. And then?
Let’s first start to explain what the sudden wealth syndrome is.
What is the Sudden Wealth Syndrome?
The Sudden Wealth Syndrome describes a psychological condition causing people to experience distress when they suddenly acquire a large sum of money. For example, shopping sprees, investing in questionable schemes, and sharing their wealth unwisely with friends and family members. It can result in poor spending decisions.
So, what should you do if you come by a financial windfall?
First thing, slow down.
Think your purchases/investment decisions through and carefully consider your next move.
Here are five tips to deal with financial windfall and your newfound wealth to make it last for generations to come.
5 Tips for Managing a Sudden Financial Windfall
#1 Make Sure You Know the Exact Amount of Your Newfound Wealth
Start with getting a clear idea of what you have acquired through your financial windfall.
It may feel like you have all the money in the world but remember we are in a time where humans generally live longer lives. Consider how much money you need to have to live your desired lifestyle now and then through your retirement.
Do you know exactly how much money you have overall?
If you don’t know how much unpaid taxes and outstanding debt you must pay from your financial windfall, educate yourself now. No matter how large the sum is, money can quickly deplete once you begin spending it. It’s good to learn how to live off the returns of your money. Focus on investing your money, rather than spending your capital.
While it may seem like this financial windfall is your cue to sit back and enjoy, often it doesn’t work that way.
Having money for the long run and not just for now requires work and responsibility.
#2 Keep Your Financial Windfall a Secret
When you receive a financial windfall, don’t tell anybody about it.
Sudden wealth can be great news for you and your family, but it can create a lot of pressure. By holding your financial windfall a secret, you take the pressure of giving money to family, friends, or charities who may be asking you for a piece of it.
If you hold your financial windfall a secret, it’s important to continue to do the things you enjoy.
Make sure you carve out time for activities that can alleviate any stress that comes with the feeling of being overwhelmed with all this sudden wealth.
#3 Think About Creating a Financial Plan
How many of us come into financial windfall more than once in a lifetime?
We aren’t prepared to create the proper financial plan for a situation like this. That’s why you should talk to a financial planner.
Share with the professional the lifestyle you wish to have or the charities you are interested in. Don’t forget to mention the friends and family members you would like to help with your sudden financial windfall. Many who come into sudden wealth have children or grandchildren they want to benefit from the money.
- Think about the inheritance you hope to leave to your heirs one day.
- Gain a realistic idea of what exactly you can afford to do with your financial windfall, while still having the money last you for a lifetime.
#4 Be Wary of Your Generosity
Are you a generous person?
When it comes to money, you may want to make your dream come through to change the world and make a difference in the lives of others. Generosity is a commendable quality. Sometimes with sudden wealth, many of us can be too carried away by it.
Ask your financial planner first to make sure you use your generosity in the best way for others AND yourself.
You don’t want to become bankrupt just because you were overly charitable or overspend.
#5 Find the Right Financial Planner for Your Unique Needs
When you begin to search for ways to invest your finances, there will be plenty of heavily promoted websites managed by questionable financial businesses.
How can you tell the bad ones apart from the true professional?
First, review their certifications, speak with their references, and ask them the right questions.
In case you receive referrals from friends, family or other financial consultants or your accountant, vet them for their professional financial qualifications and experience.
Be sure that they have experience dealing with clients who have had a financial windfall like you do.
If you need help managing a financial windfall, know that our financial planners are highly experienced with these situations. We would be more than happy to help you navigate your newfound wealth. Our professional Hudson Companies financial team can customize a financial strategy allowing you to manage your finances properly. They will give you investment advice that will grow your savings and help your extra income last.