Turn Sudden Wealth Into Forever Wealth

We’ve all imagined coming into sudden wealth at some point, so what does your dream look like?

Maybe it’s a business sale, a massive sign-on bonus, book royalties, a wildly popular invention, or even YouTube stardom. Perhaps you know you’ll eventually experience sudden wealth by receiving an inheritance.

Well, what if that money became real? How would you handle it? Would you end up bankrupt, as many others do after receiving a lump sum or would you be able to handle the emotional jolt with responsibility and discipline?

Research in the fields of neuroscience, psychology and sociology found that receiving even three months’ salary in the form of a lump sum could be enough to cause an emotional chain reaction.

That’s why we believe it’s important to understand the psychology of sudden wealth — and have a plan in place to proactively manage the financial and personal burden of sudden wealth. Here are 5 steps to financially and emotionally prepare yourself before you spend the first penny, in the case of sudden wealth.


5 Steps To Spending Sudden Wealth


  1. Decide what’s important to you.

The first thing you want to consider is what’s important to you. First, think big picture. Will this money be life-changing? How do you hope it will change your life? Who will you share it with, if anyone?

Next, start to envision some of the details. We recommend focusing first on any immediate financial needs you have been delaying because of a lack of resources. These basic needs could include debt or a mortgage repayment. Make a list of these basic needs — that’s where you’ll be spending your newfound wealth first.


  1. Assemble your team of advisors.

Now that you’ve figured out your basic needs, it’s time to assemble your team of advisors. Especially if this is a life-changing amount of wealth, you’ll want the right team of professionals to guide you through this next phase — without making costly mistakes or succumbing to common emotional pitfalls. These professionals may include a: financial planner, tax preparer/accountant, estate attorney, insurance broker, and more. The important piece to remember you’re not alone in this process and you don’t have to act alone.


  1. Create a wealth management plan.

Once you’ve decided what’s important to you and hired your team, it’s time to create a comprehensive wealth management plan. While this plan should include all professionals, we suggest having a Certified Financial Planner™ professional act as the quarterback of your wealth management plan, ensuring everyone works together to help you win the long game.

You’ll likely have major decisions to consider upfront. If you have control over when and how you’ll receive your windfall, for example, this is the time to make that decision. You’ll also want to decide whether you’re going to spend the principal or the earnings. Determine a plan that will work for you so you don’t make an emotional decision you’ll regret later.

Next you will need to address tax concerns and determine the best strategies to help you mitigate potential consequences. Ideally, you want your Certified Financial Planner™ and accountant to work together, to make sure your tax planning needs are being fully met.


  1. Solidify your plans.

Now that you have a plan in place, and your team of professionals is actively guiding you, it’s time to pause. Sleep on it. Take time to relax and reflect. Then revisit your plan and see what comes up. Is it in line with the life you want?

Now that everything has been organized it’s time to solidify your mindset. How do you view this sudden injection of wealth? Is it truly a life-changing amount of money? You may be able to suddenly quit your job and focus on a passion project, living a completely different lifestyle than before. Or you might continue living a similar lifestyle, with more security and confidence in your financial foundation.


  1. Spend wisely.

You’ve reached the final and most rewarding step of receiving and securing sudden wealth. Don’t derail your plans now with a no-limits spending spree. So set a limit and have a little fun.

If you’ve received or are expecting sudden wealth, start the conversation today. Set up a consultation with one of our wealth advisors.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.