One day your life looks a certain way. You have goals, some are lofty and some are reasonable. You have a pretty decent plan for how your life is going now and how it will go in the future. You are content and comfortable with the life you have laid out before you.
When your life changes instantaneously from a financial windfall the impact can take a toll on you, both emotionally and physically. Depending on the circumstances of how you came into sudden money, the range of emotions can vary from elation to confusion to grief to guilt.
The choices that you make during this transition can impact your life for a long time. It is often making those decisions that can come to be the most difficult part of a sudden money transition. Based on our experiences working with clients that have gone through this transition, we want to share some insights into how people can successfully manage their emotions and finances in the wake of a financial windfall.
Mixed Blessing
A sudden financial windfall can be a mixed blessing. Having a large influx of money from the sale of a business, an insurance settlement, an inheritance or a lottery win is a rare opportunity to attain long-term financial peace of mind. For most, this is a once in a lifetime occasion that can significantly change your long-term planning. But good fortune is serious business, and many pitfalls can prevent people from capitalizing on their newfound wealth. Taking the time to understand the in’s and out’s of managing this windfall can help you avoid mistakes that may negatively impact the change in your finances.
Coming into more money than you are accustomed to having can be a challenge. In some cases, your new wealth hasn’t necessarily come from a happy place (in the event of a loved one’s passing or from divorce). In other cases, the suddenness can evoke impulsive behaviors like making major purchases or lending large sums of money to family or friends in need. Giving yourself a “decision-free” period of time to familiarize yourself with your new financial reality can facilitate a positive relationship with your money, your goals and your emotions surrounding a financial windfall.
Money can evoke emotional responses from even the most financially disciplined people. Most of us have some emotional reaction tied to how we view our money. Some of us spend money to improve our mood when we are feeling down – also known as “retail therapy”. And while it is certainly acceptable to occasionally spend money in ways that make you feel better, having access to more money than you are used to can sometimes lead to quick decisions that may not be in the best interest of your long-term financial health. Also, the events that may have catapulted you to this new level of wealth – retirement, divorce or the passing of a loved one – are emotional events themselves, and emotionally-driven financial decisions can sometimes have painful consequences down the road. Like any other new chapter in your life, receiving a windfall is a period of transition, and adjusting to this transition requires clear thought and proper planning.
Pause & Carefully Weigh Options
Many questions arise after a sudden financial windfall. Options that were not available to you before – retiring earlier than anticipated, moving to a sunnier locale, choosing to volunteer instead of working or simply pursuing hobbies or interests – are now a distinct possibility. Sometimes the sheer range of yesterday’s daydreams that are now within your grasp can be overwhelming. Making decisions before thoroughly considering how they may affect you can lead to mistakes that could diminish your choices in the future. How are you going to feel about these decisions down the road? Will they leave you with feelings of guilt or regret? This planning phase is a time to take careful stock of your hopes, dreams, desires – and most importantly – your values. Deciding how you want to share your money and with who you wish to share it may be at the top of your list during the planning phase. Careful and cautious deliberation before you act – wit h a keen eye on the potential effects – will help guide you towards well-considered decisions that will promote confidence for your future.
The first thing you should do after receiving a windfall is simple: don’t do anything. Give yourself some time to settle into your new financial life before making any large purchases or major life decisions. Often people make quick purchases on things that appeal to them or always seemed out of reach financially before the sudden windfall, but they later regret this spending when they eventually settle into new financial goals. Keep in mind that friends and family members may suddenly want things from you that might seem feasible but can be detrimental to your future. The many requests for loans or gifts may seem reasonable and possible in the moment, but the wishes of others might not always be in your best interest and could potentially complicate close relationships in the future. Coordinating your post-windfall actions with a trusted fiduciary advisor will help you implement a financial strategy that protects you and keeps your wealth intact.
Action and adjustment
With the planning stage up and running, you can begin making prudent decisions about how to start spending your money. A game changer like a financial windfall calls for a new game plan, and revised estate planning and updated investments are the norm during this stage. You may also consider gifting to charities which can be a gratifying experience, and it can help shape your legacy in an enduring manner consistent with your core values. Advice from family and friends can be abundant – make sure that your decisions reflect your own tempered wishes. Regular contact and open communication with your advisors during this time can help keep your goals and expectations current and competitive. It can also help you free up your own time to manage the emotional aspects of a sudden money transition. Advisors have the knowledge and experience to help guide you through this process, so don’t be afraid to ask questions or seek clarification. Take full advantage of their ex pertise and wisdom as a crucial part of your financial planning partnership.
With your new financial goals and strategies up and running, the emphasis can then turn to management. Building upon your wealth is dependent on maintaining your goals and making adjustments as needed. Your increased wealth often translates into a more sophisticated plan, and it is normal for questions and concerns to come up during every stage of this process. Taking time to thoughtfully reflect and consider your options and decisions is helpful in navigating the complex reality of a sudden windfall. Making the most of this opportunity by making sure that your actions are consistent with your hopes, dreams, and values is the ultimate goal. As the saying goes, “you can’t take it with you”, but you can nurture the sudden money and distribute it in a way that will enrich your life and all those whose lives you touch with your prudent and disciplined approach to windfall planning.
