As a generation of Americans grows older, a considerable amount of their personal wealth is transferring to younger family members. In fact, over 60 trillion dollars is expected to change hands in the next 25 years.
You may acquire 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, it’s important to be prepared to handle it properly.
What is 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, like shopping sprees, investing in questionable schemes, and sharing their wealth unwisely with friends and family members.
When you come by a financial 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.
The first thing you should do is get a clear idea of what you have acquired. If you have little experience handling wealth, it may feel like you have all the money in the world. Remember that Americans are living longer lives, so it’s helpful to consider how much money you’ll need to live your desired lifestyle now and through your retirement.
It's also important to understand exactly how much you have overall. This includes unpaid taxes and outstanding debt. It’s important to realize that money, no matter how large the sum, is 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.
When you receive sudden wealth, it may be in your best interest to keep it a secret. Though sudden wealth 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 for activities that can alleviate any stress.
Talk to a financial professional 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.
When you come by a great deal of money, you may want to give generously. Generosity is a commendable quality, but you don’t want to get too carried away.
Before making any decisions to help friends or family with money, get advice from a financial professional who can make sure that your ideas are sustainable. Far too many people have become bankrupt simply by being overly charitable or overspending.
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 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 managing a sudden windfall, know that we are highly experienced with these situations and more than happy to help you navigate your newfound wealth. 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.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of The Oechsli Institute, Jay Ferguson and Keith Hill and not necessarily those of Raymond James.
This material was prepared by The Oechsli Institute, an independent third party, for financial advisor use.