Personal Finance

Don’t make any sudden decisions with sudden wealth


You’ve just been handed a check amounting to a large sum of money, also known as a windfall. What’s the first thought/impulse that comes to mind?

For many, first thoughts are making materialistic purchases of things they’ve always wanted such as a new car, buying or paying off a house, paying off debt, or perhaps taking a vacation they’ve always dreamed about. They may even consider investing, moving, quitting their job, or giving and providing for others and charities.

Hold your horses before making ANY decisions!

According to the National Endowment for Financial Education, 70% of people who suddenly come into “big money” end up completely broke within a few years!

We’ve heard of this happening to lottery winners and pro athletes. Sports Illustrated estimated that a startling 80% of retired NFL players go broke in their first three years out of the League. With the average salary for athletes at almost $2 million a year, how is it possible they go broke?

The main answer is they lack competent financial planning advice when they get their big contracts.

Whether the funds come from an inheritance, lottery winnings, legal settlement, divorce proceeds, big contract, the sale of a business or taking a pension lump sum payout, etc., careful planning and due diligence is imperative.

The first part of my career was spent in a litigation law firm where many of our clients were awarded substantial sums of money, many times multi-million dollar settlements. Working at the law firm, I personally witnessed the need people have for planning when they receive a large sum of money so they don’t end up spending it all and becoming broke. My conviction that people need to plan for their financial future increased as I transitioned from my initial career path into the field of finance.

It’s imperative to consider all options concerning the future investment of a newly acquired large sum of money. For some people, a large amount is $100,000, while others consider millions of dollars a large sum. Whatever the amount, a main goal should be to maximize the funds to provide security far into the future.

Here are a few steps to help you make the most out of this newfound large sum of money:

1. Take a breath. Don’t make any sudden decisions with this “sudden wealth.”

2. Be aware of people asking you for financial help. Many times it’s people who are close to you, such as friends and family.

3. Mull over what purpose(s) you have for your windfall.

4. Your finances are going to be more complex now. Hire a financial advisor to help give you unbiased advice, set up a plan and to invest your windfall.

5. Consider the tax implications and hire a CPA that can also work with your financial advisor.

6. Consider and research the psychology of receiving a large sum of money to be cognizant of what happens psychologically and to help mitigate making some of the same mistakes others have made in the past.

Many people have difficulty managing large sums of money, especially when given to them all at once. This is no surprise considering many college grads lack training in budgeting, the tax system and long term financial planning.

The key to making your newfound wealth last is to assemble your team with a financial advisor, CPA and perhaps an attorney, if needed, to create an executable plan.

Despite all of the planning and organization, remember to have a little fun. Once you have a plan in place and know how much you have as disposable income, and keep in mind that research studies show money spent on “experiences” bring more personal satisfaction than buying “stuff” that piles up in the house.

Just food for thought.

Chanel Fortier received her Bachelor of Arts in Management and Human Relations from MidAmerica Nazarene University and she holds the Master of Science in Management from Baker University.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Personal Financial Group, Inc. a Registered Investment Advisor. Personal Financial Group, Paramount Private Wealth, and LPL Financial are separate entities.

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