How To Manage Sudden Wealth

How To Manage Sudden Wealth Syndrome

It is a common myth that 70% of all lottery winners are broke within three years. That may be a little bit of an exaggeration, but whether it is lotto or a big inheritance, there are things you need to do and don’t do IMMEDIATELY.

• Don’t tell anyone

• Don’t quit your job

• Don’t make foolish, flashy, impulse purchases

• Do read and verify any small print• Do assemble a team with your best interests in mind – Financial Advisor, Accountant, Attorney

Sudden Wealth-Avoiding the Deadly Mistakes

Sudden Wealth creates shock, uncertainty, stress, and guilt in addition to elation. It can be liberating, but don’t expect carefree joy. Young people with significant new wealth may feel especially uneasy and estranged from peers if they decide to “retire” or if they can suddenly buy things that their friends can only dream about. As for telling the boss off, for most adults, our work is part of our identity and sudden wealth quitting may trigger a full-blown identity crisis. Boredom, depression, and anxiety may follow. Sympathy is not likely to be forthcoming from friends and peers.

Unfortunately, friends and family may be the biggest threat to your newfound wealth. After all you didn’t technically earn it so they may feel that you should share it. The envy of others may create a gap in your relationships and feelings of loneliness. Old friends will come out of the woodwork, sibling rivalry may be exacerbated, possible new suitors and new friends with questionable motives will arrive on the scene. If your old friends cannot afford to do some of the new things you would like to do such as travel on a whim, you may end up subsidizing them or finding new friends. In addition, you may be vulnerable to scams, questionable investment schemes, and frivolous lawsuits.

There are also some possible legal ramifications. Current financial situations such as child support obligations, government benefit eligibility, etc. may be affected. You may incur a significant tax liability. In the case of lottery winnings, anything over $5000 is subject to 24% withholding and the highest federal bracket is 37% plus state taxes. In the case of an inherited IRA, you will owe ordinary income taxes when you withdraw the money, and you have only 10 years to fully liquidate the account.

The Sudden Wealth Solution:

A financial advisor can help you pay off your debt, satisfy liens, create a plan budget and estate plan, minimize taxes, and set up charitable giving in order to turn your sudden wealth into forever wealth. Despite all the potential negatives, at the end of the day, sudden wealth is an incredible blessing if you handle it correctly. Money may not buy happiness. but is doesn’t quite buy sadness either!