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How to Manage Sudden Wealth

How to Manage Sudden Wealth

| March 30, 2024

Imagine receiving a large sum of money after a relative’s passing or winning your state’s big-stakes lottery. Anytime someone comes by a lot of money quickly, it’s known as sudden wealth, and it can be life-changing. 

Having a great deal of money fall into your lap can create as many challenges as opportunities. If you’re not used to managing such wealth, you might be left wondering what to do and what not to do. With that in mind, our financial advisors have offered some helpful guidance on handling sudden wealth. 

Sudden Wealth Syndrome 

“Sudden wealth syndrome” is a common behavioral change observed in people who end up in possession of substantially more money than they’re used to having. It occurs when someone receives an exorbitant sum overnight and begins to feel isolated, paranoid, or guilty. 

Sudden wealth syndrome can be caused by cutting oneself off from family and friends, worrying that you’ll lose your new-found wealth, or feeling ashamed of having been the one to receive the money rather than someone else. The condition can lead to other psychological issues, such as depression, anxiety, and insomnia. 

Beyond mental health concerns, you might have read about people who have obtained big awards from lawsuits, lottery winnings, sports contracts, or inheritance, only to deplete their coffers in a short time and end up with no other option than to file for bankruptcy. 

This doesn’t have to be you. There are ways to manage your newfound wealth that will allow you to avoid the pitfalls of sudden wealth syndrome. 

Keep Calm — and Keep to Yourself 

Coming into a large sum of money is exciting, and keeping that excitement bottled up can be tough. However, try to resist the urge to let the world know about your stroke of good fortune through social media or any other means. You may even want to think twice about telling too many people in your family or friend group. 

The fewer people who know, the fewer problems you’ll likely have. Consider keeping the news to yourself, if possible, and leaving the money untouched for the time being — after all, there’s no rush to do anything with it. 

After your initial excitement, take a few steps back, sit down, do your best to process the windfall, and get back to business as usual. 

Assemble a Team of Professionals 

While it’s important to take some time to breathe, one thing you should do as soon as possible is put together a team of professionals to advise you on how to handle taxes, investments, and legal liabilities. First and foremost, you’ll need a tax professional to help you figure out your tax liability and avoid paying too much or too little. 

A qualified financial advisor also should be included in your team of professionals. If you haven’t handled large sums of money before, a financial advisor can help alleviate some of the pressure and uncertainty you might feel as a result. 

Your advisor will listen to you, learn about your goals and values, and work with you to develop a plan to help you achieve your objectives and secure your financial future.  

Make a Wish List for Your Money 

At this point, there’s no urgent need to come up with an authoritative financial plan as you’re still letting your money ride. Just jot down a basic list of needs, wants, and goals that align with your values. 

Aside from calming your mind and helping you focus, this kind of simple planning will give you a list of things to discuss with your financial professionals. 

Pay Off Debt and Create an Emergency Fund 

When it comes to your financial plan, the top two items you’ll want to check off before investing, financing major purchases, or giving to charity are paying off any outstanding debts and creating an emergency fund. 

Start with high-interest credit cards, student loans, auto loans, and other obligations, following your financial professional’s advice on how to repay them. Depending on the amount of your new wealth, you might consider putting more toward your mortgage or vehicle lease to pay your home or car off faster. 

It’s also a good idea to set aside three to six months’ worth of expenses (or more if you can) to set up an emergency fund if you don’t have one already. 

Find a Reliable Financial Advisor 

Whether you’ve just received a hefty inheritance, scored a sizable salary increase, or are looking to build your wealth gradually, make it a point to speak with a financial advisor at Good Life Morehead City. Our team is passionate about helping clients achieve prosperity. 

Reach out today to schedule a free financial consultation.