Have you ever dreamed of winning the lottery? What would you buy first? Who you would share your winnings with? It can be a lot of fun, even if your chances of actually winning the lottery are pretty slim.
However, you might find yourself with sudden wealth from other sources—such as through an inheritance, selling a business, or winning a lawsuit.
Of course, you can have fun dreaming up how you’ll use the money, but there are also a few key actions you should take if you find yourself in the midst of any sudden wealth event.
Why sudden wealth be challenging
A study by Wolf Street discovered that about a third of lottery winners end up declaring bankruptcy, often within only a few years of the big win—that’s a higher rate than the average American.
You might be wondering, what gives?
A sudden influx of money often means the owner:
- Faces temptation to spend wildly and freely
- Faces a variety of new financial obligations (e.g. taxes)
- Must field many requests from family and friends who hope to grab a piece of the windfall
How to avoid the pitfalls of sudden wealth
Of course, it is possible to enrich your life through sudden wealth rather than degrade it. It just takes Some reflection, expertise, and careful planning.
As Susan Bradley, founder of the Sudden Money® Institute, explains:
“There are these events these big events that pivot life into a new direction. These events are like a big disruptive crack in our status quo but inside that crack is the potential and the possibilities to intentionally, deliberately design the next great chapter of our lives.”
If you find yourself in the midst of a sudden wealth event, it’s important to recognize your emotions, assemble a team to keep you on track, avoid quick decisions, and deflect requests for your money.
1. Recognize your feelings
You may feel joy and exuberance—but depending on where the money is coming from, some people also feel anxiety or guilt. It can be extremely stressful to deal with all of these feelings while also making decisions about your new money. Sudden wealth can even result in identity crisis.
Remember, money doesn’t change who you are. Happiness is an inside job. Find a therapist or a wealth coach who can help you work through your concerns and feelings. This will be key to choosing the behaviors that contribute to your success rather than sabotage it.
2. Assemble your dream team
Many people with sudden wealth end up losing money through taxes, poor planning, and getting taken advantage of. As soon as you find out about your new wealth, assemble a team of professionals to guide you and protect your interests. You will need a CPA, an attorney, financial planner or wealth advisor, and an insurance expert.
With all of these different parties in play, you may also want to find someone to quarterback your team—typically, your wealth advisor can fill this role for you.
3. Avoid quick decisions
It may be tempting to immediately quit your job or splurge on the beach house, but your financial success depends on measured decision making. Take some time to determine your answers to questions like:
- What do I want this money to accomplish?
- What are my short-term and long-term goals? Do they align with my values?
- What behaviors might I or those around me have that would put our future success at risk?
- What do I want my legacy to be?
- What sort of lifestyle do I desire?
- Which causes or people would I like to be able to give to?
- Will my choices make me happy—or just make life more complex?
4. Deflect requests for money
As soon as people know about your new wealth, many will start asking for you to share it. The best approach at the outset is to deflect these requests until you know what is possible. Language like the following relieves you of the burden of making the decisions and turning people down single-handedly:
Thank you for reaching out. I’m still trying to understand what our new financial situation means for myself and for my family. I’ll be discussing what’s possible for the future with my team of advisors. Please give our family some time to get our arms around the details.
Once the dust settles, you can decide what sort of people and causes you’d like to contribute money to and adjust your responses accordingly. For example:
We’re happy to consider donations to causes that support education, women and children, and veterans. If your request aligns, please send over some information and our and team of advisors will evaluate how we may be able to contribute.
Achieve financial security
Once you have a clearer view of what kind of life you want to live and what you want to accomplish with your money, it will be much easier to achieve it all. However, it will take time to learn how to make your money work for you and your loved ones rather than against you.
Some areas you may need to dive into:
- What are the best ways to help family and friends without hurting relationships?
- How can I maximize my charitable giving efforts—without putting my financial security at risk?
- How can I help my children without hurting their drive to do things on their own?
The good news is you don’t need to do all of this learning by yourself. Lean on your team of advisors to answer your questions and serve as thinking partners. They will get you the information and guidance you need to make productive decisions—and really enjoy your new wealth.