Executive Summary:
- Managing a sudden windfall requires careful planning and consideration of the short-term and long-term implications.
- Many people mismanage their sudden wealth and end up worse off than before, a symptom of what therapists call “sudden wealth syndrome.”
- Five steps can help effectively manage a sudden windfall: take a step back and avoid impulsive decisions, identify goals, secure the future through financial planning, practice saying no to requests for money, and consult a trusted advisor.
- A waiting period of two to three months is recommended to process your new financial situation and make thoughtful decisions.
- Seeking the help of a fiduciary financial advisor, such as a Certified Financial Planner (CFP®), can guide you in managing windfall and avoiding common pitfalls.
If you’ve come into unexpected wealth—whether through inheritance, prize money, or overnight business success—you may feel overwhelmed by what to do next. Managing sudden windfall requires careful planning and consideration of your decision’s short- and long-term implications. Unfortunately, few can navigate this transition successfully.
Studies show that around 70% of people who receive a windfall won’t have any left within just a few short years. In addition, they report that their sudden wealth left them feeling worse than before—isolated, guilty, and fearful of losing their fortune, symptoms of a condition therapists have dubbed “sudden wealth syndrome.”
You don’t have to look far to read stories of people who mismanaged their wealth—there’s the lottery-winning Kentucky man David Lee Edwards. Edwards won $27 million but was penniless just five years later, living in a storage shed with his wife. The couple reportedly spent $3 million in the first three months and a staggering $12 million by the end of the first year.
So how can you avoid that same fate? Fortunately, there are proven steps you can take to effectively manage a sudden windfall and avoid many of the common pitfalls along the way.
5 Steps to Managing a Sudden Windfall
Once you’ve received your windfall, do the following steps before making big life and financial decisions.
1. Take a step back
One of the most common mistakes people make when receiving a sudden windfall is making quick and impulsive decisions—quitting their job, buying a new home or car, or heading out on their dream vacation.
And it makes sense—coming into sudden wealth can be an intensely emotional experience. For inheritors, it means they just lost a loved one; for lottery winners, it feels like they’ve finally got their big break. But for both cases, there is likely a list of things they would love to experience with their newfound wealth.
However, acting quickly and impulsively can create a cascade of events that may lead to losing your new fortune.
Instead of taking action immediately, give yourself a 2–3 month waiting period to process the reality of your new financial situation. This means no major financial or life decisions. This will let you make more thoughtful decisions and keep your emotions in check.
2. Identify your goals
Your waiting period can be the perfect time to identify your goals to know what to do with a windfall.
In her book, Sudden Money: Managing a Financial Windfall, author and financial planner Susan Bradley highlights some key questions you can ask to help identify your goals. She writes that you can ask yourself the following:
- What is really important to me?
- Where do I want to be in 5 years? In 10 years? In 20 years?
- What do I want to be doing?
- What dreams do I have for my family?
- What have I always wanted to do but never had the opportunity to do?
- Whom do I want to help?
- If money were no object, what would I be doing?
- What is my perfect day? Week? Month? Year?
- How would I like to look back on my life when I am dying?
By answering these questions, you’ll better understand what is most important to you, which can guide you on how to manage and invest your wealth.
3. Secure your future
Once you’ve identified what’s most important to you, you can build a plan to secure your future.
For some, that will mean setting aside enough of their inheritance to ensure they never have to work again. For others, it could be starting the business they’ve always dreamed of or purchasing a rental property to create monthly cash flow.
Whatever your plans are, the important thing is to ensure that you’re using your wealth to accomplish the goals you’ve identified while securing your future.
4. Practice saying no
Depending on the nature of your windfall, it could be public knowledge, or maybe you’ve told some close family and friends about it. Whatever the case, you may discover that some of your friends or family want a piece of the pie.
Long-lost relatives may show up at your doorstep looking for a handout. Old pals from school may approach you with an “exciting new business opportunity.”
This can be challenging, as you could be experiencing guilt around your sudden wealth and feel obligated to share it. Of course, giving an intentional gift to a relative or friend in need is always an option. However, if you don’t feel comfortable sharing your wealth with others, then it’s essential to practice saying no.
It won’t be easy, but protecting your financial security and well-being should be your priority. Remember that it’s your money, and you decide how and when to use it.
5. Consult a trusted financial advisor
Lastly, seeking a trusted advisor when managing your newfound wealth is essential. A financial planner can help you create a clear action plan to protect your assets and achieve your goals. More importantly, a trusted professional has experience with people in a similar situation to help you identify and avoid common pitfalls.
However, proceed with caution, as not all financial advisors are held to the same level of professional care.
When searching for an advisor, look for a professional held to the fiduciary standard— that is, a legal, moral, and ethical obligation to always act in your best interest. Tencap is a stated fiduciary on each case. Furthermore, another way to identify a fiduciary is to find a CFP® professional, as they must act as fiduciaries at all times.
Tencap Wealth Coaching is here to help
At Tencap Wealth Coaching, we’re focused on helping you achieve all your financial goals and more through academically sound financial planning. From managing a sudden windfall to retirement planning and tax strategies, we are here to manage the complexities around your money. With Tencap leading, you can expect to feel confident around your financial plan and capacity to lead an excellent and enjoyable retirement.
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Nick Carrigan
Nick trains and develops families in creating, maintaining, and growing wealth. This includes educating clients on the science and academics of investing, comprehensive financial planning, and ongoing coaching to ensure discipline for a lifetime. Nick has seen this create incredible levels of freedom, fulfillment, and love for the families he works with.
