Monday, July 15, 2019
What to do when receiving a large amount of money
Unexpected large amounts of money are generally seen as a good thing. Who doesn’t love extra cash? Sometimes they are not that joyous, as sometimes it means a loved one is no longer with us. Making sure that money lasts is important, but the numbers show sad reality. Over one-third of people who come into a large windfall end up back where they started less than 5 years later. In fact, lottery winners are 3 times more likely to go bankrupt compared to average people. I have for you 10 tips on handling a large amount of money so you can come out on top. Let’s make sure these blessings don’t turn into a nightmare.
It can be shocking to see your bank account balloon up overnight. One client of mine inherited a very large amount of money from his late father and overnight saw a multiple 7-figure amount go into his bank account. This type of cash can drive some people wild. I think it is important to understand that while your life is now changed, it doesn’t have to change that much. I recommend taking a step back and acting like it isn’t even there for a bit. The instinct is to go out and get the things you have always wanted. You have lived your whole life without those things, so why rush now? The money isn’t going anywhere unless you do something to it. Take some time to absorb the situation, I would recommend a few months. Don’t quit your job, don’t burn bridges. You want to handle this situation the right way. Continue like it never happened until you fully absorb the gravity of your new reality. You will be thankful you did.
2) Stay Quiet
You now have a good amount of money. Be careful or you may also be the most popular guy around town. People are known to gravitate to those who have money. Sports stars, lottery winners and Hollywood big shots always tell stories of how receiving a large amount of money can also be a curse. Family can turn scary. Friends may become foes. I would highly recommend that you only tell a select amount of people, ones you know aren’t out to get you. This would tie right into the first part, taking some time to relax. A bunch of new stuff will get people thinking you have come into money, so just let it be for a while.
Here’s why lottery winners go broke – CNBC
3) Don’t make a massive purchase right away
Over 20% of people with newfound wealth buy a new home right away. It is obviously the dream of most to be a homeowner, but I would caution jumping the gun on that purchase. The reason for me is simple, homes are very expensive. It wouldn’t be a shock to see that home and everything you put inside it cost upwards of half a million dollars or more. Depending on this size of your windfall, that might be the majority of it. Making fast large purchases could have a devastating emotional effect on you. Seeing a fast depletion of those funds brings upon regret. This is why so many new millionaires go bankrupt. It is not because of what they bought, but more of how fast they bought it. When you see a rapid depletion of money you go into “not caring” mode. That will aid in the even more rapid depletion of the rest of your money. At that point, people often try to conjure ways to get the original amount back. This leads to hairbrained schemes or risky investments. As I said, you have lived your whole life without a Ferrari, a little more time without one won’t kill you.
The Dangers of Overextending Yourself When Buying a Home – Budget Boss
4) Pay down debt
One thing I would do right away would be paying down debt. Doing so will give you a sense of relief and that will help you moving forward. There is no reason to owe money on a credit card if you have money in the bank. I would, however, caution against paying down other people’s debts. We all have the natural inclination to helps those we love, but a little time to feel out the situation won’t ruin you. Paying off other people’s debts might create a group of people with their hands out. That will bring unneeded tension in your relationships. Also, if you have multiple forms of credit, get rid of them and keep one credit card or line of credit. There’s no point in having that many to begin with.
5) Establish goals
You have more money than you ever imagined, make sure you address what your goals are for this money. If you want to help people out, write that down. If you want to be a homeowner, do that too. If you want to retire early, make a note of that. Take some time to write down your short (0 to 2 years), medium (2 to 5 years), and long-term goals (5 years and beyond). Establishing goals is important for several reasons. When you take the time to map out your goals, the next step is to find a way to best accomplish them. While you may think accomplishing them will be easy, and it often is if you are now wealthy, being efficient is what matters. When you have the “money is no object” mentality, money then becomes no object. This can lead to inefficiency and waste. Taxes are an issue and so are recurring costs. You may not realize it but heating your new mansion will cost you a fortune. Take some time to really dive into your goals and think of all the pitfalls that might come with them.
Do These 5 Things, and You’ll be Wealthy. Don’t Do Them, and You, Well… Won’t – Budget Boss
6) Read up on investing
Do you know what’s better than 1 million dollars? 5 million dollars. Makes sense, right? How you get there is by properly investing your money. How you properly invest your money is by understanding how investments work. As mentioned in the past paragraph, taxes will be a factor, so get a good accountant. Know where to put your money for long-term growth. Stick to reputable dealers and not fly by not investment advisors with no-name companies. If you focus on slow and steady growth you could potentially have a very large amount of money that could last generations. If you look for a quick double up, you could crap out very quickly.
Investing is About Goals, Not Performance – Budget Boss
7) Follow the markets
After you have read up on investing and sought out the guidance of a professional, begin to follow the markets. It is not uncommon for the markets to go up or down 1-2% in a day. It is also not uncommon for them to go up or down 5% in a few weeks. Do you know what a 5% loss in a month is? Do you know what that would do to your investment? How would you handle that emotionally? Could you deal with seeing that kind of decline in that short of a period? This is why watching the markets for a bit is important. As you begin to see their natural ebbs and flows, you begin to understand that there is no need to panic or jump for joy with every little movement. You have a large sum of money; it is not how much you have that will determine your success. More important than the number is your emotional state. How you react to the market is the key indicator of success. Selling at the wrong time can crush you. Making emotional decisions can hurt your nest egg. Bone up on market fundamentals and you will know what to expect. Long story short, be Blaise about growth or losses. The more you let it be, the better you’ll do.
8) Think about your fears
Fear is what will dictate your decisions when you come into a large amount of money. Are you afraid of losing friends, or family that you love? Are you afraid of who might come out of the woodwork? Are you afraid of losing all this newfound wealth? As mentioned before, it is your emotions that will determine your success in this situation. Your fears need to be addressed and a plan must be put into place that matches those fears. If you fear this money will be gone before you can do good with it, “lock” up a chunk of it for the long-term. There are many ways to do that. If you are worried about monthly income, consider an annuity that will provide stable growth and cash flow for a period of time. There is a financial product for every goal and every fear, so investigate what will work best for you. Unaddressed fears will lead to bad decisions, so get it all out there.
10 Terrible Pieces of Financial Advice – Budget Boss
9) Think Legacy
How do you want to be remembered? We all want good things to be thought of us and imagine if you had the capability to provide for those in need? How did you receive this money? Was it blind luck? Was it through the passing of a loved one? What do you want this money to accomplish for you and the ones you care about? I look at money as a tool. It is a tool that can be used to make peoples lives better. It sadly can be used for destructive purposes as well. If you focus on legacy, your money will have a greater impact than you can dream. This is indeed a noble goal.
How to Make the Most of Your Inheritance – Money Coaches Canada
10) Enjoy yourself
Okay, you can buy that dress. Go get those shoes. Don’t get the 50K handbag though, that’s just foolish. Money is a tool like I mentioned. Use it as a tool to do the things you wish to do. There is no point in having great wealth if you can’t enjoy it. Steve Jobs, an uber-wealthy man, eventually lost his life to cancer. His wealth could not save him and that shows that money cannot buy everything. What it can do is be used to make your life more enjoyable while you are on this earth. You can’t take it with you, so have a little fun while you are here. I emphasize the word little.
A financial windfall can be a great blessing or a great burden. Take some time to truly think about which one you want this wealth to be. A little planning will go a long way to make this something you can be thankful about for many years to come.
“Estate planning is an important and everlasting gift you can give your family. And setting up a smooth inheritance isn’t as hard as you might think.” – Suze Orman
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