You just sold your business, took a lump sum distribution from your retirement plan, signed the big contract, won the lottery or inherited unexpectedly from Great Aunt Jane. What should you do first?
If you have come into what seems like a significant amount of money to you, recognize that your life has changed. You need to plan what to do. Depending on your circumstances, you may be leaping for joy, grieving for loved ones, realizing a life long dream, or totally dazed.
New Fortune Action 1 – Don't tell
You need time to adjust to your situation. If you spread the word that you have a windfall, you will be bombarded with attention and requests for help. Give yourself a break and keep mum until you get it figured out!
If you can't control publicity (as sometimes happen with lottery wins, sports contract signings and etc), don't give unnecessary interviews or information out...let the story die.
If knowledge of your windfall is public, think about changing your phone number or staying somewhere other than home until the hub-hub dies down.
New Fortune Action 2 – Do nothing
According to Sudden Money by Susan Bradley and Mary Martin you need to allow yourself a “no decision” period. If your fortune came through a death, you need time to finish grieving. However your fortune came, you need time to learn to understand your new money situation and figure out how to deal with it. Make only those decisions which you absolutely cannot put off. Take a few months to work through figuring out if and how your life should change.
Don't quit your job. Don't give away your money or control over your money. Don't spend or give right away. Don't lend money to friends or family. Don't make investment decisions before you have a plan.
Research and think through potential impacts the windfall may have on you and your family and think about how you might like to handle those.
New Fortune Action 3 – Get help
Don't rely on advice from friends, relatives and neighbors – they all have their own agendas. Find qualified and neutral advisors (Certified Public Accountant, Financial Advisor, Estate Planning and other types of lawyers).
New Fortune Action 4 – Develop & execute your financial plan
Think about your short and long term goals. How does this windfall fit into your plans, your family's plans.
Understand what you really have or will get (after taxes, legal fees and etc). Let your advisor help you think about how long it can or should last and what you can and cannot do with it. Remember that you probably won't be able to do every little or big thing that you want to do – that the money has limits and isn't necessarily self renewing.
Learn a bit about personal finance topics if you don't yet know. Understand common terms and asset types, what risks there can be, how much money the windfall can earn, what advisor fees can do to it and etc. This will not only help you make better decisions, but will also make it easier to communicate with your advisor team. Consider doing this even if you hate money management and want someone else to do it for you. If you want to hang on to any of your windfall, you should never just turn your money over to someone to manage for you without monitoring what they do and having proper safeguards and controls in place to protect your interests.
Put together a plan, some advise to invest the windfall gradually so that you don't risk losing it all at once – putting the remainder in a secure interest bearing account in the meantime. Then begin to execute that plan.
Think carefully before taking irreversible actions, such as setting up and funding an irrevocable trust or giving money to someone. Also remember that some investments, such as real estate, are not easy to get your money out of any old time you want it.
Put safeguards in place for your and your family's mental protection. Figure out how to put barriers up that will deflect unwanted requests for part of your windfall. Some ask for all requests in writing, then vet them through their advisors. Others send all requests to a special web site or mail drop and have personnel to deal with them (or ignore them).
Oh, and don't forget to enjoy life a bit as you go through it - you can't go back!
Sudden Money by Susan Bradley and Mary Martin copyright 2000 Published by John Wiley & Sons, Inc.
“Managing a Windfall” by Lynnette Khalfani Black Enterprise; Nov 2006
“Advising the suddenly wealthy” by Ralph Bovitz, Mitchell Freedman, Karen Goodfriend. Outlook. Palo Alto: Spring 1998. Vol. 66, Iss. 1
“Falling into fortune has downside; Locking down on immediate spending can help.” from Columbia Daily Tribune. Columbia, Mo.: Apr 2, 2007.
“The psychological impact of sudden wealth” by Eileen Gallo. Journal of Financial Planning. Denver: Jan 2001. Vol. 14, Iss. 1; pg. 48, 3 pgs