Simple Certainty | The Good Problem: How to Manage Sudden Wealth
It’s a problem we’d all like to have. A sudden windfall can come from a variety of places: an inheritance, selling an asset (a business, perhaps), selling an investment property, or downsizing. Of course, a lucky few strike it big with the jackpot, though I can count on one finger the lottery winners I’ve met over the years.
Deciding how to manage sudden wealth can be exciting, but it also comes with its fair share of stress. There are many paths to choose from and advice will be flying at you from every corner (a lot of which won’t be coming from a place of expertise).
Before we get to the things you should do when managing sudden wealth, let’s go over what to avoid.
Don’t do this upon receiving a windfall
As we’ve mentioned, you’ll hear a plethora of opinions about the best way to spend or invest your newfound wealth. There’s no doubting their intentions, but it’s important that you avoid any well-meaning advice from friends and family members. They might have your interests at heart, but the fact is they don’t know your circumstances, needs or goals. Generally, they’ll be thinking of what they would like to do with the money, which may not be what you would want to do, and they most likely have a very different risk tolerance. Managing sudden wealth can be stressful; don’t add to it by making high-risk investments that you aren’t comfortable with.
Secondly, don’t act before you think. The temptation is high, but it’s incredibly important that you have a plan in place for the entire sum of money before you go out and start buying cars and houses or gifting large amounts to friends and family. Otherwise, when you finally do sit down to think about the long-term picture, it’s often too late to make it a reality.
Finally, don’t underestimate the complexity of the financial world. We’ve said it before and we’ll say it again: the options you have when presented with a large sum of money are almost limitless, and it’s hard if you’re not in the industry to recognise the good opportunities from the bad ones. You will be amazed at how fast a big windfall can disappear. Always seek professional advice before investing or spending.
Now that we’ve looked at the don’ts, let’s look at the dos.
The right way to manage sudden wealth
Fortunately, this is pretty simple: seek knowledgeable and experienced advice. Sit down with a professional financial adviser whom you trust and work out what you want from this sum of money and how it can help you attain the lifestyle you want.
Maybe you want to make charitable donations, help out family or friends, eliminate a mortgage, perhaps set yourself up for retirement. Whatever it is, developing a financial plan before you spend allows you to prepare a tax-effective strategy so you can maximise the use of your windfall and invest it in line with your risk tolerance.
And that’s the key. What helps to narrow down your list of options isn’t just deciding on what you want to do with your money, but also staying within your risk tolerance levels.
Coming into a small (or large) fortune is a wonderful thing and opens up a world of possibilities for you and your loved ones. The last thing you want is those possibilities slowly dwindling through mismanagement and poor decision-making. Get expertise on your side and make the most of your good fortune.
Please note this is general information only and you should always seek your own personal