5 Tips for Managing a Sudden Financial Windfall
As a generation of Canadians grows older, a considerable amount of their personal wealth is transferring to younger family members. In fact, a trillion dollars is expected to change hands by 2026.
You may come by sudden wealth in other ways, such as the sale of a business or property, divorce settlements, winning the lottery, money from an insurance claim, or profits from investments. Regardless of how you receive your newfound money, you may not be prepared to deal with it properly.
Understanding Sudden Wealth Syndrome
Sudden Wealth Syndrome is described as a psychological condition that causes people to experience distress when they suddenly acquire a large sum of money. This could result in poor spending decisions, such as shopping sprees, investing in questionable schemes, and sharing their wealth unwisely with friends and family members.
When you come by a windfall, it’s important to slow down and carefully consider your next move. Here are 5 tips for making sure your newfound wealth lasts for generations to come.
1. Take Stock of Your Newfound Wealth
The first thing you need to do is to understand what you have. If you have little experience with wealth, it may feel like you have all the money in the world. However, Canadians are living longer, so it’s important to think about how much money you’ll need annually to live your desired lifestyle now and through retirement.
It’s important to understand exactly how much you have. This includes unpaid taxes and outstanding debt. You should realize that money, no matter how large the sum, is often quickly depleted once you begin spending it. It’s important to learn to live off the returns that you make out of investing your money, rather than spend your capital.
While it may seem like this sudden wealth is your cue to sit back and enjoy a life of luxury, it doesn’t often work that way. Money is more than just a ticket to a better life. It requires work and responsibility to ensure that it lasts.
2. Keep It a Secret
When you receive sudden wealth, it may be in your best interest to keep it a secret. Though sudden money can be great news for you and your family, being discreet can help avoid the pressure of giving your money to family, friends, or charities who may be seeking a piece of it.
If you choose to keep your sudden money private, it’s important to continue to do the things you enjoy. Those who come into sudden money can become overwhelmed, so make sure you carve out time to still do activities to help alleviate some of your stress.
3. Create a Financial Plan
Talk to your financial planner about the kind of lifestyle you hope to have, the charities you are interested in, the friends and family members you hope to help, and the inheritance you hope to leave to your heirs one day. It’s important that you gain a realistic idea of what exactly you can afford to do, while still having the money last you for a lifetime.
4. Be Wary of Your Charitable Instincts
When you come by a great deal of money, you may surprise yourself with how generous you want to be. Generosity is a commendable quality; however, Sudden Wealth Syndrome can often cause people to get carried away.
Before making any decisions to help friends or family with money, get advice from a financial advisor, who can make sure that your ideas are sustainable. Far too many people have become bankrupt simply by being overly charitable or overspending.
5. Find the right team of financial professionals
When you begin to search for ways to invest or safeguard your money, you will come up against plenty of heavily promoted websites managed by questionable financial businesses. It’s important to tell them apart from the true, reputable consultants. Review their certifications, speak with their references, and you ask them the right questions.
If you receive referrals from friends, family or other financial consultants or your accountant, vet them for their professional qualifications and experience. Make sure that they have experience dealing with clients who have the kind of wealth that you do.
If you need help securing your finances after a sudden windfall, reach out to us, as we are highly experienced with dealing with these situations. We can customize a financial strategy that will allow you to manage your finances properly by giving investment advice that will grow your savings and help your extra income last.