Coming into Sudden Wealth?

Question: 

Duncan, what practical steps should I take now that I’m a ‘sudden wealthflow’ recipient?

Answer:

Generally speaking, people who come into money quickly, such as lottery winners and people who receive large inheritances, usually make decisions too soon. They put their house on the market and buy a new, bigger one right away. They buy several cars, resign from their jobs, and invest in ideas that sound too good to be true.

So what can a person do to protect themselves when they suddenly find themselves with a lot of money?

The first is to proclaim a moratorium on decision-making. They should put the money into safe investments for the time being and then take some time (say, 3 to 6 months) before taking any action on money decisions. The 3- to 6-month timeframe is a planning stage.

The next thing they need to do is to get organised and focused. They need to list the major life decisions they’ll take over the next 5 years.

During the 3- to 6-month planning stage, they should write out how they’re going to live during this stage. What will their expenses be? Where will they get their income during this time (and how much)? How long will this planning stage last?

Beyond the planning stage, they need to review their income for the following 12 months and beyond. They need to plan out what they want their life to look like in the next 5 years. (For example, where will you live? What will you do every day? What will you be involved in? How extravagant will your life become?) They need to ask themselves what future expenses are coming, such as university education, retirement, and travel. They may choose to plan philanthropic gifts.  Although philanthropy is not necessarily right for everyone.

During the planning stage, a new millionaire will also want to find a financial planner, accountant, and private client lawyer (and perhaps a wealth psychologist). They can ask for referrals and then interview each professional to get a good idea of compatibility.

In addition, I’ve discovered that people who come into sudden wealth notice their phone ringing a lot more often, as people they don’t even know find out about their new wealth, find their phone number, and start calling asking for investment money and handouts. (This is in addition to the family members and friends who start calling a lot more often.) This would be a good time to either drop the home phone number completely (even if that number has been the home number for years) or get a new home number. Likewise, getting new mobile phone numbers would probably be a good idea. (Then only tell select people the new numbers.)

What about those friends and family you might lose if you come into sudden wealth? You know what? You can’t control other peoples’ responses when you choose not to invest in their business ideas or give them loans or handouts.

If you ever find yourself the recipient of an influx of cash, keep your head on straight. Don’t go to extremes. Give yourself quarterly reality checks. Expect that you are going to lose some friends and family members. And get advice from several qualified professional people regularly.