How to help future-proof your life when you gain sudden wealth
4 min | 15 August 2022
If you woke up tomorrow with a seven-figure bank balance, do you know what you’d do with it? How much to save, and how much to spend? In our ‘flash the cash’ society, we’re not taught how to handle new wealth, but there are things to keep in mind if you want your wealth to last long term.
Imagine this: after years of honing your skills, over-delivering on every project and becoming an invaluable asset to your industry, you land a huge promotion and are gifted company shares that become worth an eye-watering amount. So, now what? What are you supposed to do with all this extra wealth?
Shiny new wealth may come to you in a different way. Maybe you’ve had a sudden windfall overnight – your very well-off elderly relative leaves you a huge inheritance. Or maybe you’re starting your first well-paid job after graduating. In any case – congratulations! That said, would you know what to do with your newfound wealth? And even if you don’t foresee any income boost anytime soon, it’s important to know how to handle it when (fingers crossed) you have a big bag of cash to put away.
Money, money, money
In Western culture, we’re familiar with images of what wealth might look like: fast cars, big houses, designer clothes, luxury yachts. Those are fun toys and expensive goods that shouldn’t necessarily be off limits. For most people, though, an important consideration is working out a plan to future-proof your life. That way, you’ll be protected from draining away your new found riches.
Beware of Sudden Wealth Syndrome
You may be thinking, “What’s the worst that can happen?” Because as long as you pay your bills each month, the rest is up for grabs, right? Well, believe it or not, there is a phenomenon called Sudden Wealth Syndrome. Ever heard of lottery winners ending up penniless after a couple of years? Or superstar athletes filing for bankruptcy despite multi million-dollar contracts? That’s Sudden Wealth Syndrome. According to Sports Illustrated, 78% of pro American Football players found themselves in acute financial trouble just two years after retiring from the game. The syndrome involves limitless spending, along with the anxiety and emotional distress that come with endless options, which can lead to poor financial decisions.
So, what to do about new wealth?
Financial experts suggest that if you come into lots of money suddenly, don't act in haste. Keep your newfound wealth quiet around friends and family. Otherwise, you may be overwhelmed with obligations, demands and nasty interactions, which might trigger poor decisions.
Bring in the experts
The first step would be to find a financial adviser. The goal here would be to make your wealth sustainable – so it can keep you in comfort and safety for the long haul. One way of budgeting suggests dividing income based on a 50-30-20 split: 50% for needs, 30% for wants and 20% on savings and investments. But in cases of greater wealth, the ‘needs’ section, i.e. your fixed costs (such as housing, bills and food), may not require half of your available cash. This is where a good adviser comes in. Once you’ve determined the cost of your ‘needs’, they’ll help you structure the remaining sum between savings and investments, paying down debt, guilt-free spending and anything else that’s important to you. All while trying to grow your wealth for the future.
That said, a good budget probably isn’t complete unless there’s room for spending on the things that are valuable to you. So, another benefit of doing nothing for a little while is you’ll notice what you really want once initial impulses fall away.
Cost vs. value
Deciding what’s most important to you is crucial before you start spending and budgeting. For example, you may feel pressure to buy a house and a car, but if travel and charity are more important to you than owning property, renting homes and leasing transport may be more aligned with your values.
It's worth noting that although professional help is key, only you can determine what your ideal life looks like – and that’ll be the blueprint that your financial plan can be mapped against, along with expertise from your financial adviser, so that you can have a good life.
Disclaimer: This article is for information only and does not constitute financial advice. Whatever your situation, we encourage you to work with a professional adviser.