Imagine it. After years of carefully managing your stock portfolio or holding your property purchase, you finally make that big sale. Way to go, you!
You’re now much richer than you were before. That’s always a good thing, right? Well, yes and no. It can be daunting to manage an unexpected boom in wealth. Often, sudden riches can go straight to a person’s head. When we find ourselves much better off, our brains become awash in crazy ideas.
Hot advice: don’t just go out and spend it all immediately. It can be tempting to buy that flashy new car or refit our homes with the latest gadgets. This can be exhilarating in the present but potentially damaging for the future. So what to do with all that moolah? Here are my suggestions based on people I’ve seen who have struggled with their wealth windfalls—and those who have done all the right things.
What NOT to do
First of all, there are several things you should be wary of. Sudden wealth has a habit of disappearing quickly (I know the feeling) and often leaving us in a deeper hole than before. If you want to make sure you can enjoy your money long into the future, there are a few things to consider:
- Don’t make any major commitments – jumping straight into a series of contracts or agreements to give people money will drain your resources quicker than you’d think. Don’t make any rash, long-term promises straight away.
- Don’t flash the cash – it can be tempting to start telling everyone about your success, but this can be a big problem. Envy can spread fast, and people will quickly see you as a potential source for loans. Others may want to help you control your money and provide bad advice.
- Don’t make big purchases – being able to buy all the things you want right away will be tempting. You may want some new tech or shiny toys to show off, but do you need them? You will have plenty of time to enjoy your new wealth. Don’t go throwing it away in the first week.
Remember: money that comes suddenly can disappear just as quickly. If you don’t take your time and give it some thought, you will find yourself right back at square one. Or worse, with even less than you had before.
What TO do
Know what you have
Your sudden windfall may seem too good to be true, but don’t get carried away and make irrational decisions. Before you do anything with your new wealth, carefully review every related piece of paperwork. Get your partner, or a trusted friend, to go through everything twice. Make sure you know what taxes apply to it and understand any tax fees or deductions. Once you’ve read the fine print, you can begin making your life-changing decisions. Then, you will have that correct final value of your money.
Although it’s your money, it pays to make sure you aren’t the only one in charge of it. Consult qualified CPAs or tax planners about your situation. These professionals can help you understand your legal obligations and ensure that your taxes are accounted for, as your tax status will change. If you are considering any charitable donations, then a good lawyer can set this up.
It will also pay to speak to any realtors or loan officers you may have. If you have a mortgage or outstanding loans, they can work out better payment plans that account for your new wealth. This can help you better cover any bills and perhaps even shorten the length of any repayment schedules.
Plan for the Future
Once you have your obligations handled, you can begin planning for the future. Do you want to reinvest this new money? Perhaps seek new business ventures? Or maybe improve the quality of your current lifestyle?
A money coach can help you get clear on your wealth-building strategy. This can be anything from choosing further investments or buying a property that can work for you. Or perhaps you might want to increase your monthly household budget. Regardless, knowing what you intend to do will give you the ability to plan accordingly.
Review your Wealth Regularly
You’ve got your payments set up. You have your new investments planned. Your lifestyle has improved, and you have less debt. It will be tempting to sit back and relax at this point and let everything work out.
This is A TERRIBLE IDEA.
Even if you have everything planned out, make sure you regularly look back over your bank accounts and payment plans. Keep an eye out for any changes in interest, taxes, or hidden charges. If you ignore these things, they can pile up, and you will see your wealth disappearing even quicker.
With regular reviews, you can catch any changes as they happen and adjust things accordingly with help. With frequent adjustments, you will be able to mitigate any losses and keep yourself comfortable.
Finally, with all this serious wealth management in place, it can seem like you aren’t enjoying your new wealth. Good news! You don’t have to be entirely strict and boring with your money.
With everything in mind, set aside a safe 5-10% of your overall new wealth. You can use this money for WHATEVER YOU WANT (as long as it’s legal, of course) while ensuring it doesn’t cut into your important business. As long as you observe this 5-10% rule, you can splash out and go crazy without affecting your financial stability.
After all, what’s the point in having all this money if you can’t enjoy it?