I just got off the phone with an old friend – a musician – who called in a panic. He was beside himself and for a moment I thought maybe disaster had struck. Once he settled down, he admitted that he had just won more than a $100 million dollars in the lottery. “Dude – your problems are over!” I said. “Now you can play your music and enjoy your life!” “No!” he said “I have no idea how to do this and you’ve got to help me!” “You know something about money. I don’t have a clue!” I was astonished! This guy had just received a prize we all covet t but he was not ready for it!
It’s tempting to laugh and say “I wish I had that problem!” The reality is that sudden wealth – for someone who has never had money – presents emotional challenges. It’s been the subject of extensive research. The result: “Sudden Wealth Syndrome“, is a well-documented problem. From initial euphoria, some even descend into depression from the guilt associated with good fortune they never imagined they would experience. It’s hard to imagine that good fortune can bring such a problem but it does so in a surprising number of cases.
If you come from a family with no wealth tradition and are unsure how to proceed here’s some practical advice:
First – Keep the news within your immediate family for a time
You need time to process the changes your new life circumstances will bring, including the emotions it engenders. The onslaught of people coming at you seeking to help you or to receive help from you will be heavy and you need time and a means to process it.
Second – Put a Financial Plan in Place & Pay Your Taxes
Put a financial plan in place! Let me say it again. Put a financial plan in place! It sounds dull and tedious but it will help you like few things can and it will lower your stress dramatically! “You wouldn’t go on road trip without a map or a GPS like Waze. Don’t go on a spending spree without a financial plan,” says Barry Mendelson a Certified Financial Planner™ at ZRC Wealth Management, LLC in Walnut Creek, CA. Adds Barry, “The purpose of a financial plan is to help you identify your goals and then show you how each dollar supports achieving those goals.”
Make your first call to a financial planner – not a realtor! A financial plan keeps your finances on-track and helps you from being blown off course. Once you’ve got a financial plan you will know how much house you can buy and not go broke next year. Decision making becomes much easier. Then you will know how much you can spend when you call the realtor, the car dealer, the jeweler, the travel planner and all the people you are going to reach out to when you want to spend your money.
Pay your taxes, please! The worst financial planning mistakes I’ve ever seen made have come as a result of an excessive focus on avoiding income taxes. Look – it’s like this – if you make money you should pay your taxes and just move on. Don’t over pay them, of course. Get a good tax advisor and work through the issues carefully but don’t get lost in the wilderness of tax avoidance schemes. You will regret it. I’ve seen it many times. Do yourself a favor and don’t go there.
Third – Hire professionals to help you
You’ll need a team for this and they won’t be cheap but it will be money well spent! I would suggest the following order:
Certified Financial Planner (a CFP) – call this one first
CPA – with tax knowledge
Wealth Manager – to manage the money day to day
Estate Planning Attorney – you will need some legal help and perhaps a trust
You will need a team composed of all these pros that provide a counterbalance of advice – so you are not relying on one perspective alone. They are all essential to making your plan work successfully. Some larger registered investment advisory firms can provide the full range of these services.
Fourth – Educate yourself about wealth
Your team will help you but you are the decision maker. To be “a good decision maker” you’ve got to be informed. There are a myriad of resources available to learn about the fundamentals of managing wealth. Become a student for a time and learn them.
Fifth – Reward and take care of yourself
If you’ve long coveted a large house, a fancy car, a cabin on the lake or a ski condo then work that into your financial plan. If it fits do it, if it does not, then rethink it! The reward has to fit within the context of your plan. Obviously, if your new wealth is $10 million spending $5 million on a mansion might be going too far. Don’t let euphoria overwhelm logic – the cost is too great!
Finally, think of your new found wealth as a “tool” to enable you to live the life you want on your terms. And what do we know about tools? They have to be maintained and handled well. If you manage wealth well it will meet your lifestyle needs and enable you to live the life you want. It won’t of itself make you happy or lead to self fulfilment but it can help you move in that direction. Don’t underestimate the emotional adjustments that sudden wealth will impose on you. Be aware of it and deal with it. If you need help from a life coach or emotional therapist, get it. Don’t hesitate. Everyone who experiences sudden wealth typically goes through an adjustment period. It’s not you – it’s the money and everyone struggles with it. Don’t try to go it alone. Consider joining groups like Tiger 21 or others that offer support groups for people of sudden wealth to provide support for the many issues that come with this life change.
Get the help you need and let the new found wealth help you live the life you want!
If you need a referral to any or all of these financial pros or help assembling a team of them then call me!
Doug Kennedy has extensive knowledge and hands-on experience in building robust foundations for family offices and serving the role of trusted advisor. He performs business advisory services and financial consulting work for a variety of family-owned businesses from start-ups to mature successful enterprises. His experience has been spent in family dominated publicly owned companies, high net worth individuals, estate planning, wealth management, succession planning, leadership transition and risk management.
If you would like to speak with Doug, please use the comments section to make a request.