Sudden wealth can come with serious emotional and financial challenges
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If you aren’t used to the idea of having money, it can cause anxiety and stress.
For those who do not have much money, sudden wealth can cause serious financial and emotional problems.
Will you keep working? Purchase a home and private school. Barry Glassman is a financial advisor and the founder of Glassman Wealth Services in Vienna, Virginia. “Sudden wealth can offer more options, but it can also cause anxiety and a lot of headaches due to the sheer volume of decisions that must be made.”
Think about professional athletes. The National Bureau of Economic Research found that 15.7% of NFL football players filed for bankruptcy in the first 12 years of their retirement. This despite them earning millions of dollars during their career. Sports Illustrated reports that 78% of former football players found themselves in financial trouble within two years. Pro basketball players had slightly worse statistics.
Many people struggle with luck, even young athletes who are made millionaires overnight. People who have large financial sums often struggle to manage it. What should you do when you are the lucky recipient of a large sum?
Sheryl Garrett, CFP, founder of Garrett Planning Network Eureka Springs Arkansas, said “Don’t do anything to make a good year.” Don’t contact a financial advisor or tell anyone details, except for a tax lawyer.
Glassman also has this advice. He said, “Don’t purchase anything. Don’t invest. And don’t repay your debts.” You can take those decisions within a month.
It is important to meet immediately with tax professionals in order to determine the taxability of any windfalls and to ensure that you comply with all tax laws.
You will have to make many choices, not all of them happy. People who don’t have significant wealth will likely face emotional difficulties if they are given a lot of money.
The stories of lottery winners’ woes are real. It is possible to change your family’s expectations and cause serious problems in close-knit relationships.
Garrett explained that “when it comes to money someone in a circle family and friends will experience problems.” It could be someone who is the recipient of the money, or a brother in law who believes he should get some.
“People get greedy,” she added.
Garrett warns that people should be wary of illusions of great numbers. She often sees clients being offered buyouts of defined benefit pensions. People who are offered $400,000 per month vs. $2,500 per monthly for the rest their lives will often take the lump sum regardless of whether the monthly payment is better financially.
Garrett stated that “we have a bias towards thinking large amounts of money will last for a long period.” “There’s so much pressure to accept a big lump sum. There is also so much desire to separate us from this money.”
Even those with much greater wealth face difficulties managing their money. Glassman knows clients that have bought businesses worth millions and made investments that drained their wealth over the long term.
His client was worth $15 million, he said. “He took out $4 million to purchase real estate. He was left with $11million and $100,000 for new annual expenses.”
You don’t need to purchase a home, car, or boat for you or someone you love. You shouldn’t spend money quickly or give your family and friends gifts. This isn’t ensuring your wealth will last. A financial plan is essential.
After you have “done nothing”, consult an accountant certified public, the next step is to seek out a qualified financial advisor that can help with managing your wealth and making sure it lasts.
Glassman stated that it is up to each individual to decide what’s most important. Glassman said that you may wish to repay student loans or get a house or motorcycle for Mom.
He added that “it typically can’t always be everything.” A good financial advisor can help you prioritize your priorities, and help you make money work for your goals.