Whether it’s from an inheritance, settlement, divorce, a major sale, initial public offering (IPO) of your business or winning the lottery, most people would agree coming into a large sum of money is a good problem to have. We have all dreamed about having the resources to instantly pay off our mortgage, purchase a new vehicle or go on a luxury vacation. But sudden wealth comes with a unique set of unexpected financial and emotional challenges.
If you find yourself in this position, it’s important to acknowledge that while this new chapter in life can be thrilling, it can also be overwhelming and, for some, even paralyzing. As a certified financial planner (CFP®) with a certified financial therapist (CFT-I™) designation, I’ve witnessed the joys, trials, tribulations and obstacles that come with an unexpected windfall of money. I’ve walked many families through the maze of decisions and emotions they encounter. With my training, I have learned how to support my clients with a cross-disciplinary approach by mapping out a comprehensive financial plan while filtering the necessary steps of the emotional peaks and valleys of this new journey.
To make this process less stressful and more manageable, it is important to break down the overall process into a roadmap of wieldy, bite-sized pieces.
- Assemble your team
Before you do anything, I strongly urge you to gather a team of trusted, reliable professionals to guide you. At a minimum, I’d recommend your key players include a certified public accountant (CPA), an attorney and a financial advisor, financial planner or wealth advisor.If you are in need of an advisor, begin the search for an experienced CFP® professional. Besides possessing a strong foundation of education and time-tested skills in financial planning, this individual is legally bound to put your best interest first as a fiduciary. To help you wade through the intricacies, nuances and complexities of both the financial and emotional aspects of a windfall, I suggest your chosen professional also hold a certified financial transition or certified financial therapist™ designation. Depending on the nature of your windfall and the emotional impact you are navigating, you might also consider partnering with a trusted, licensed therapist.Your financial advisor can also suggest other trusted professionals that may benefit your situation.
- Understand your cash flow and immediate needs
Individuals who come into sudden wealth typically fall into one of two categories: they either have a massive amount of money at their disposal and don’t know where to begin, or anticipated assets are not yet available to pay for immediate financial obligations, generating added stress. In either case, your chosen team will help prioritize the most time-sensitive tasks, explain how your newfound money is structured, develop a plan to provide an income stream to cover your spending needs, consider intermediate and long-term tax considerations and prepare you for the next steps in your new journey.
- Recognize your emotional needs
While most people understand that their financial life will forever be changed when coming into a large sum of money, they are not prepared for the intense emotions and unexpected feelings that may accompany this unanticipated acquisition. Depending on how you came upon your newfound wealth, you may be intimidated, overwhelmed, nervous, excited or even experiencing survivor’s guilt. If you don’t have a background in finance, you may feel like you’re drinking from the firehose trying to process the enormous amounts of information that are being thrown at you. I have found this often leads to what is called “analysis paralysis,” or the inability to prioritize imperative tasks and take action.It is also a common desire to honor the origin of your newfound wealth in a personalized way or to quite literally “spread the wealth.” Whether you wish to donate a portion of your newfound funds to charity, bless other family members or pass your gifts along through other avenues, it’s important to recognize, respect and act upon what is important to you through the partnership of your trusted team.
- Take the next step
It’s important to address both the financial and emotional aspects of a large windfall of wealth. Because sudden wealth may come about in so many ways, specific needs and recommendations are going to be different for each person and circumstance. Keep in mind that articles like this can be helpful in organizing your thoughts and building motivation, but nothing can substitute the customized guidance and reassurance a well-trained team can provide. If you have any questions about this complicated topic, please contact your financial planner about your specific circumstances.
About the author
As a wealth advisor in Buckingham’s Dallas and Austin offices, Bethany is dedicated to helping clients make wise financial decisions that fit their unique values and aspirations. Besides being a certified financial planner (CFP®), she also holds a certified financial therapist (CFT-I™) designation. This specialized training allows her to support clients through both the financial and emotional aspects of falling into sudden wealth.
For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third party data and may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy or confirmed the adequacy of this article. R-23-5415