16 August, 2018

The Sudden Wealth Paradox: Part 1


The Sudden Wealth Paradox is a two-part article guiding you through both the emotional and financial aspects of suddenly receiving a large amount of money. The surprise is – it’s not all easy streets.


Part 1: Managing Your Emotions

Most of us are comfortable with becoming wealthy gradually. Over the years, we build up equity in our homes, our earnings increase, and we can afford nicer things, like a better car or a more exotic vacation. But, when a sudden windfall happens – from the sale of a business, the sale of a house or farm, an inheritance, or even lottery winnings – the results can be unexpected.

A sudden change in your wealth status can be exciting and liberating, but at the same time, you may feel confused, overwhelmed, isolated, guilty, or sad. After all, your identity is wrapped up in your home, your job or business, your friends, where you shop, what you drive, or where you vacation.

Suddenly, all the parameters that you built your life around, and all the ways you define yourself, are up in the air. You’ve had the rug pulled out from under you and replaced with a magic carpet. What now?

It’s a nice problem to have, you would think. But the truth is, sudden wealth can play havoc with your emotions, your relationships, and your life – if you let it.

So, how can you manage sudden wealth and the challenges that come with it?

First of all, you need to manage your emotions. Here’s how:


Do not make any big decisions or life changes right away

The fact is, we make poor decisions when we’re emotional. And whether your sudden wealth is the result of the sale of a business or the death of a loved one, you’re going to be emotional. You may experience euphoria, relief, guilt, anger, or regret. You may even find yourself feeling a loss of identity or sense of purpose. The thing to remember through this is to ‘keep calm and carry on.’

For the time being, park your money in a safe short-term investment, and give those feelings time to process. There’s no rush.


Keep a low profile with your new-found wealth

If possible, try not to tell many people about your windfall, since it will likely attract the wrong kind of attention.

In the book ‘The Millionaire Next Door,’ we learn that many millionaires lead quiet lives and drive the same car for ten years. By keeping a low profile, they avoid attracting unwanted attention from wealth – fraudsters pushing bad investment ideas, lawsuits, unwanted advice, predatory ‘friends,’ and relatives. Avoid making sudden changes to your lifestyle to protect your privacy.


Change the way you think about money

Most people tend to live at or above their means, so money is a commodity to be consumed. But when you have substantially more than what you need, it is wise to rethink your relationship with money.

Think of money as a resource. Treat it like a forest. Would you cut all the trees down and sell them all? Or would you use some for firewood, sell some, and replant, thinking of the future? To ensure that your resource will last, it’s important to steward it by planning and managing it responsibly.

Imagine how the windfall could make not only your life better, but improve the lives of your children and your children’s children. As Warren Buffet once said, “Someone is sitting in the shade today because someone planted a tree a long time ago.”


Learn about money

Learn all you can about wealth. Even if you plan on delegating a lot of the responsibility, you need to become knowledgeable so that you can make informed decisions. Educate your family and children on the value of wealth so that you can work together on decisions that affect everyone. After all, as Benjamin Franklin once put it, “An investment in knowledge pays the best interest.”

A sudden change in your wealth status can trigger conflicting emotions. Take your time and give these feelings time to process before making any life changes or big decisions.

The next step is to learn how to turn “sudden wealth” into “lasting wealth,” by creating a solid financial plan that reflects your priorities and goals, and investing wisely. Read The Sudden Wealth Paradox, Part 2: Managing Your Money in the upcoming October issue.

Coming into a large sum of money can be exciting and overwhelming at the same time. Just like with any other situation which changes your financial position, it’s important to seek advice on what to do with your new wealth. As your Financial Advisor, I can help you take control of your finances and build a strong plan. Call my office to discuss your situation.

* https://www.mitpressjournals.org/doi/abs/10.1162/REST_a_00114

Original Article Published:  http://www.ipcprivatewealth.ca/insight/the_sudden_wealth_paradox/