A big financial windfall because of a lottery ticket, a substantial unexpected inheritance, or some other means can actually prove challenging. It can cause you problems that you might have never anticipated.
While sudden wealth is not a very common way to become rich, it does happen. The “suddenness” can lead to an array of complications and problems. The advantages and drawbacks of being wealthy come fast and hard. The speed and intensity of the experience can easily result in broken relationships and the mismanagement of wealth. For many who experience sudden wealth, it is an emotionally charged and overwhelming experience. In contrast, most people who build wealth slowly can address issues and concerns incrementally over time.
Becoming wealthy fast can produce big problems in your relationships with other people. Want times, these conflicts are with the people closest to you. For example, family and friends may come to you for money. They might want help in paying their bills, investment funds, or loans. Marriages can be adversely impacted by sudden wealth. Arguments over what to do with your newfound affluence are common. As for new relationships, the question becomes is it you or your money that is drawing the attention.
Common Ways Sudden Wealth Become NO Wealth
There are four main ways, people who become suddenly wealthy tend to lose a sizable—and sometimes all—their monies. These wealth destroyers can impact anyone.
Giving away too much money: If you give too much of your wealth away, you might end up in a precarious financial position faster than you might imagine. Even loaning money can prove problematic and occasionally disastrous. Most times, there are not any mechanisms in place (such as collateral) to ensure getting repaid.
Extravagant spending: When some people get a windfall, they spend wildly. There is nothing wrong with treating yourself well and enjoying a good life. But if the money needs to last a long time, excessive spending can jeopardize your financial future. The key is to balance needs and objectives with wants.
Poor investing and planning: If you receive a windfall, there will be a lot of professionals seeking to help you manage your money and address your wealth planning needs (such as an estate plan). There is a high probability that many of these professionals are simply not talented enough to help you. You want to work with consummate professionals--experts who sincerely care about you. They understand the difficulties you face due to becoming suddenly wealthy and can help you chart a financial course that matches your needs and wants. Consummate professionals can also act as a sounding board when it comes to most aspects of dealing with your newfound wealth.
Lawsuits and divorce: Your sudden wealth can make you a target for unscrupulous litigants. One way to address this possibility is by safeguarding your assets. By working with a consummate professional who is well versed in asset protection planning, you can potentially legally insulate yourself from prospective deceitful and ruthless litigants.
To make a windfall work best for you, you need to make intelligent and informed decisions. Moreover, it is crucial to always recognize that you are in charge and to take responsibility. When financial decisions are to be made you use always be involved and assertive.
RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine (pw-mag.com) and Chief Content Officer for High-Net-Worth Genius (hnwgenius.com). He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.