Managing a Financial Windfall: Balancing the Personal and Practical Challenges

A few years ago, while scanning The Wall Street Journal, an article caught my eye. In it, finance professor Meir Statman made an interesting observation: “We want two things in life: One is not to be poor, and one is to be rich.”

The quote left me thinking about my own enriched life, as well as the lives of others who have beat the odds and hit personal financial jackpots. Whether through luck, skill or an equal dose of each, these things really do happen. I’ve met business owners and executives with hefty cash-ins from their successful companies, and professional athletes with substantial signing bonuses. I’ve also spoken with newly wealthy beneficiaries, recipients of windfall legal settlements and people who have had their numbers finally come up in the mega-millions lottery.

Regardless of the source, the differences between “not being poor” and “being rich” are usually thrown into stark contrast for the suddenly wealthy. Wealth is good but, for better or worse, it changes you dramatically. It shifts priorities, alters allegiances and rearranges your life.

Dreams Coming True, Nightmares Realized

When it’s well-managed, sudden wealth can be a dream come true. It can open up you and your family to greater opportunities, giving you the opportunity to stop imagining and start doing bigger and better things. You may decide to shift your career, make a difference in the world, or relax and enjoy the finer things in life.

On the flip side, unlike the gradual adjustment of slower success, sudden wealth can be a bombshell, blowing up your fondest connections. It’s a little like returning home one day and finding a much grander, but entirely different, house sitting right where your old home had just been. Wow! But…

A Dose of Financial Reality

It’s entirely understandable if one of your early reactions to newfound wealth is something like, “Woo-hoo! It’s party time!” After getting over the initial shock, sudden wealth usually does warrant a celebration.

But then there’s your “happily ever after” scenario to consider.

You may not want to hear this, but to keep the good times rolling for you and your loved ones year after year and decade after decade, you’ll want to take the time to build a solid wealth management structure. Doing so will allow you to maintain that euphoric feeling while still supporting your dreams. This sort of infrastructure calls for far less party-time activities, including financial planning, tax planning, investment management, risk management, estate planning and more.

In short, if you want to ensure that your new wealth has a positive impact on you and yours for the rest of your life, you’ll need to begin a conversation as soon as emotionally possible. Include those close to you as you address:

What is now realistically possible, and what is not?
What are the logistics involved in planning, enacting and managing your new wealth?
Who will help manage your wealth, so you’ll have ample time to enjoy it?

Let me explain what I mean by “as soon as emotionally possible.” Successfully acclimating to sudden wealth does call for these sorts of significant financial adjustments. But speaking from my own and others’ experiences, it’s the personal adjustments that are most likely to throw you for a loop. That’s why, from day one, it’s critical that you and your advisory team integrate your personal circumstances tightly into your practical plans. You and your family remain the primary focus, ahead of the processes or the property.

The Personal Angle

I’ve seen many scenarios involving people who were smart or fortunate enough to exceed expectations in their chosen career, whether it involved riding the wave of a high-demand service or throwing a baseball at 98 miles an hour.

Nice stuff when it happens to good people. But it’s not unusual for those good people to be unprepared for the emotional fallout. Just because someone may be a great MLB batter, for example, does not mean he’s ready to be a great financial steward. It’s common to feel trapped by a volatile brew of emotions, including:

Stress – This is overwhelming. Now what?
Fear – What if I mess up this amazing opportunity?
Mania – I am Master (or Mistress) of the Universe!
Guilt – Why me, when there are others who deserve it more?
Confusion – Everyone seems to want something from me. What should I do?
Denial – Nothing is going to change; I won’t let it.

Fortunately, by being attuned to these and other typical traps, you and your family stand the best chance to manage them appropriately, and emerge stronger, happier and wealthier on all fronts. It can also help to work with an advisor who has been there and done that. That advisor can help guide you through the myriad personal and practical components involved in managing sudden wealth.

Michael Evans is a member of the BAM Alliance.

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