How to handle a sudden financial windfall

Consider it a problem we all want to have. But consider this a potential problem.

After all, in order to manage money wisely, you need a plan. The same thing happens when wealth appears at night.

Sudden wealth can take many forms. Pension payments, large inheritances, legal damages from lawsuits and the sale of businesses can create wealth that can change the recipient’s life—for better or worse. This is because a lot of money with different decisions, each has the potential to spend or invest money, increase or decrease happiness, and strengthen close relationships.

“I found the first step very frustrating. It’s hard for your mind and body to absorb the change,” says Susan K. Bradley, a financial planner in Palm Beach, Fla. and founder of the Sudden Wealth Institute, which trains financial advisors to help clients work on ‘every side of the storm.

Dealing with all the problems of sudden wealth takes time—usually three to five years—before hurricane proponents feel more rational, Ms. Bradley.

In her work at the institute, Ms. Bradley met a woman who used to sell shoes in a department store before inheriting millions of dollars. Coping with his new lifestyle is just one challenge. Another family member—and presumed heir—received a named inheritance, and the heiress tried to deal with his anger and resentment. “It took him three years to create a new life and feel like he fit in the world,” Ms Bradley said.

two basic elements

Both elements are important in dealing with the multimillion-dollar storm, he said. The first is a trusted person—usually a trusted friend or family member—who becomes an important office to help realize all the ideas and possibilities that come with the new money. Mrs. Bradley knows a Catholic nun, a teacher, who won a lottery jackpot and told the school custodian, who is a good friend.

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The second key is a team of advisors who can review the client’s existing finances, such as mortgage and credit card debt, college savings plans and charitable giving. In the longer term, an advisor can help narrow down investment options, create an estate plan, develop a tax strategy and ensure adequate insurance coverage.

Ms. Bradley also suggested that air receivers consider a health professional who can help with the emotional side of sudden wealth, because, she said, “it can mess with your head “.

The councilors will work together as a board of directors to monitor and manage the wind receiver’s finances, Ms Bradley said. They can fight off predators, friends or family members who are trying to make a gift. Financial accounts should be transparent to all members of the board of directors, creating a system of checks and balances that can detect theft or mismanagement.

Receivers should carefully research potential advisors when assembling the team, as not all professionals are honest. Case in point: In July, a New York attorney who called himself a “lottery lawyer” was found guilty of wire fraud and money laundering in a scam that defrauded lottery winners. greater than $100 million.

This team of advisors is structured like a family office, which is an independent wealth management firm that serves multiple generations of a highly valued family. At Summit Trail Advisors, a family office based in Chicago, about 20% of clients are recreational or professional athletes, many of whom come from humble backgrounds, says Peter Lee. , founding partner.

He said: “My biggest advice is to do nothing for a while. a way to preserve capital, often in safety-oriented investments,” such as municipal bonds.

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Many professional athletes go “from living in a hotel room with five roommates to signing a $50 million contract,” he said. .

Instead, the company’s advisors find smart ways for their clients to help others. Mr. has a client. Lee signed a huge contract in the NBA and wanted to give his five brothers a chance instead of cold hard cash. The company created a strategy to allow players to finance the brothers’ business, creating their own income.

Help clients have “open and transparent discussions about fairness and appropriateness. Then make a plan,” said Mr. Lee. “When there is a lack of a game plan, everyone is drinking from the same bowl. There is no management.”

A little sting

Boulevard Family Wealth, a family office in Beverly Hills, Calif., has worked with several clients who received an inheritance or proceeds from the sale of a business. “We try to be open and honest, even if it stings a little bit,” says Matt Celenza, co-owner of the firm. and lease an aircraft instead of buying it outright. The same applies to buying a house and other big expenses.

The goal, said Mr. Celenza, is to protect and increase land assets that will benefit current and future generations. It’s not always easy. His company created a portfolio for a client that was designed to generate regular income. But consumers like to tap their assets to make personal investments in one direction.

“This has infringed on his finances and will soon affect his ability to make withdrawals without touching his principal,” Mr Celenza said. ‘Not applicable. “We’re very vocal about what’s right and what’s wrong.”

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Money and happiness

Weathering the storm, however, is not just about ensuring cash. It is also about making sure that the money is used to make the recipient happy. Otherwise it’s just money to make money.

In the long run, the way people choose to spend their money has the biggest impact on their overall happiness, according to a 2019 study. The authors, Israeli academics in behavioral economics, developed a model that shows the short-term and long-term effects on recipient happiness, which vary over time. In general, winners who quit their jobs and took up a vacation lifestyle were less happy than winners who devoted their wealth to social pursuits and other activities that gave them pleasure, such as travel, recreation and volunteering, the author said.

The idea that many lottery winners are broke and homeless is largely a myth, says Robert Östling, professor of economics at the Stockholm School of Economics. He was part of a team that looked at the effects of winning the lottery on mental health. The study, published in 2020, analyzed the results of a Swedish government survey that included responses from 4,800 people who had won the lottery five years or more.

Research has found that winning the lottery has little to no effect on happiness, said Dr. Östling. But there was little change in overall life satisfaction. “It’s not that surprising, because rich people have more life satisfaction,” he said.

Each study has different goals and approaches, but they all try to answer the question: Can money buy happiness?

Dr. said. Östling: “Compared to other life events, money has little effect on life satisfaction and happiness.

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