Family & finance: handling sudden wealth.
Becoming a Hollywood movie star. Amassing great wealth. Most of us have daydreamed about both at one point or another about financial windfall. But while the downside of fame is well-documented in tragic celebrity stories, very few people realize how unexpected wealth can completely upend their lives. In fact, according to the National Endowment for Financial Education, seventy percent of people who suddenly come into a large sum of money will declare bankruptcy within a few years. Many also suffer from “Sudden Wealth Syndrome,” which includes a host of symptoms including depression, anxiety, paranoia and substance abuse.
Managing money is like any other skill: you have to acquire not only theoretical knowledge but the practical tools to apply it. It doesn’t matter if it comes from financial windfall like an inheritance, a winning lottery ticket or a business investment, it is imperative that you learn to deal with your wealth in a way that is healthy, not only financially but emotionally as well.
The first caveat is to assess your net worth before jumping into the spending. In previous posts we’ve covered how poor financial decisions can make even the largest estates disappear. Unless you are a world leader or the head of an international conglomerate, you probably don’t need that private jet. And just because you technically have the means to purchase three homes, that doesn’t mean you should. If wintering in Hawaii is on your bucket list, check into a month-to-month rental first before buying an estate that can cost you hundreds of thousands a year in maintenance.
Engage a financial advisor, but don’t let that person replace your own judgement. The trend in wealth management is to empower principals to take more control of their estates. The key here is balance – carefully vet and hire a trusted professional with a proven track record while also educating yourself so you can take ownership of your affairs. There are also a number of digital tools, including all-in-one solutions, that can help you keep track of your accounts, maintain your physical assets, and communicate with your financial team in real time and from anywhere in the world.
Guard your privacy. This may seem like common sense, but in the age of social media it needs to be said: DO NOT POST about anything that may reveal your change in circumstances. That means no check-ins at lavish resorts, no pictures of the piece of jewelry you bought your spouse, and no stated “quandaries” about whether to buy the Porsche or the Lamborghini. This caveat extends to your “real-life” connections as well. If a person doesn’t have a years-long track record of having your best interests at heart, they should not know what’s in your bank account.
This leads to another very real issue that affects people who come into sudden wealth: isolation. Oftentimes, they feel guilty about their good fortune and/or worry that their friends and relatives will be jealous or use them for handouts. The answer: keep your relationships as normal as possible. If you and your best buddy usually meet up at a dive bar, don’t suggest switching to high-end steakhouse he may not be able to afford. If you have hang-ups about the “evils” of money, seek out a therapist who specializes in treating wealthy people.
Even the most positive life-changing events – marriage, the birth of a child, or a dream job – can be stressful. When it comes to financial windfall, sudden wealth stress can make you call into question your relationships, your purpose and even your very identity. It does not have to be the way, so long as you get the help you need, courageously face the learning curve, and embracing your newfound wealth for the blessing that it is.
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