By: Laura Chiesman
When a fortune comes without calling, it’s apt to leave without asking.
–GEORGE HORACE LORIMER, Old Gorgon Graham
If you came into an extra $10,000 you might pay off some debt, get rid of some college loans, or take a much-needed vacation. What if you suddenly had an extra million, or $10 million, or more? We often think of sudden wealth as a result of an inheritance, sale of a business, or perhaps a spectacular lottery win. Other sources of new wealth might be a divorce settlement, life insurance payouts, lawsuit settlement, or an employer stock option exercise. In any case, if you come into a windfall, along with the new opportunities, you’ll have issues to deal with and serious decisions to make.
It is estimated that up to 70% of all people who suddenly receive large amounts of money will lose that money within a few years.1 You would need to evaluate your new financial position and consider how your sudden wealth will affect your life and your financial goals.
Evaluate your new financial position
Just how wealthy are you? You’ll want to figure that out before you make any major life decisions (e.g., to retire). Your first impulse may be to go out and make a few large purchases, but that may not be in your best interest. Even if you’re used to handling your own finances, now’s the time to watch your spending carefully. Sudden wealth can turn even the most cautious person into an impulse buyer. Of course, you’ll want your current wealth to last, so you’ll need to consider your future needs, not just your current desires.
Answering these questions may help you evaluate your short- and long-term needs and goals:
- Do you have outstanding debt that you’d like to pay off?
- Do you need more current income?
- Do you plan to pay for your children’s education?
- Do you need to bolster your retirement savings?
- Are you planning to buy a first or second home?
- Are you considering giving to loved ones or a favorite charity?
- Do you want to provide for future generations?
To make the most of your newfound wealth you’ll need a plan that considers the above questions and deals with a variety of issues – investing, insurance needs, estate and tax planning. A good team of experts can help you navigate these topics.
When to wait
It’s wise to take some time before making big changes after any major life event. There are many decisions to make fairly quickly, but there are also changes that can wait and decisions to defer. Here are a few moves you may want to pause before making:
- Quitting your job
- Starting a new business for yourself
- Buying a new home or relocating to a new area
- Making major gifts to family members, friends, or even charities
- Funding businesses or projects for others
All these decisions need to be taken in context considering your entire situation and your goals including finances, business, family support and protection, charitable giving and others. For thoughts on financial ‘context’ see Tom Kirk’s blog Context is the Key.
Give yourself room to think, relax, and enjoy. Set aside a small fund to treat yourself to something special you wouldn’t have bought or done before — it’s okay to have fun with some of your new money!
While you’re finding trusted advisors and putting together a plan, you’ll need time to get used to your new normal. A great first step is to meet with a personal WealthCoach whose focus is to help you make smart decisions and create the future you dream of. Call our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area at (321) 773-7773 to schedule your complimentary initial consultation.
You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.
1National Endowment for Financial Education®