What is Sudden Wealth?

Question:

Duncan, I hear the term ‘sudden wealth’ more and more often these days, but what is it?

Answer:

Well there’s gradual money and there’s sudden money.  Most of us are used to gradual money – earning an income and building a nest egg over time.  It’s a slow and steady process.  As our net worth increases over the years, we adapt and slowly become more financially sophisticated.  We may first hire a tax adviser to help with self-assessment, then work with an investment adviser to manage our growing wealth, and then a lawyer to help create an estate plan.  It’s like riding a smooth elevator – you’re going up, but you hardly feel it.

Then there’s sudden wealth.  It’s like being on the ground floor of a 100-story building and rocketing to the penthouse suite in seconds.  It sounds a lot more exciting than gradual money, but what exactly is it?

Sudden wealth means getting more money than you’re used to being responsible for – and getting it all at once. The distinguishing factor is that the amount has to be large enough to take you out of your financial comfort zone.

Where does sudden money come from?  It may have resulted from luck or hard work.  It may have been years in the making or it may have happened in an instant.  It may have been the result of a long and bitter battle or simply being at the right place at the right time.  It may have come from a painful end or a happy beginning.  Typically, sudden wealth comes from a legal settlement, divorce, sale of a business, inheritance, lottery winnings, sport/entertainment contracts, retirement packages, or share options.

Regardless of where the money comes from, you’re the same person you were the day before you received it, but you are quickly thrust into a new and often uncomfortable situation.  While sudden wealth sounds like a great thing, it can cause anxiety, indecision, and fear in those who don’t adapt or develop a strategy.