Receiving a significant sum of money unexpectedly, whether through an inheritance, sale of a business, legal settlement or other windfall, can be both exciting and overwhelming.
We call this type of occurrence a “sudden wealth event.” While sudden wealth can provide incredible opportunities, it can also pose unique challenges, especially for those who’ve never managed large sums of money before.
Here are some key steps to take if you experience a sudden wealth event:
- Don’t rush into major decisions
When you receive a large influx of cash, it’s tempting to make big changes right away, like quitting your job, buying a house or going on a spending spree. However, it’s crucial to take a step back and assess your situation before making any major moves. Give yourself time to process the emotional impact and think through your options — but don’t wait too long (see #5).
- Assemble a team of professionals
Managing sudden wealth is complex, with significant tax, legal and financial implications. It’s essential to surround yourself with a team of trusted advisors, including a financial planner, accountant and lawyer. They can help guide you through financial intricacies and develop a plan that aligns with your goals.
- Consider your goals and values
Sudden wealth can be an opportunity to reevaluate your priorities and build the life you want. Take time to think about your short-term and long-term goals, like paying off debt, funding education, buying a home or retiring early. Consider your values too — what legacy do you want to leave and which causes do you want to support? Keeping your goals and values at the forefront can help guide your financial decisions.
- Develop a comprehensive financial plan
With your professional team, create a detailed financial plan that addresses how to manage your windfall in a way that supports your goals. This might include strategies for paying off debt, setting up emergency savings, investing for growth, minimizing taxes and protecting your assets. Your plan should provide a roadmap for the future while allowing flexibility as your life evolves.
- Invest thoughtfully
One of the biggest mistakes sudden wealth recipients make is letting their money sit idle in a chequing or low-interest savings account. While it’s important to have some easily accessible cash for emergencies, planned purchases or paying off high-interest debt, consider how to invest the rest strategically to support your goals. Your advisor can recommend an investment mix that offers the right balance of growth and protection for your needs.
- Be discreet
People in your life may treat you differently when they learn of your windfall. To protect yourself and your relationships, be thoughtful about who you tell and how much you share. Your advisor can also suggest strategies to reduce your exposure to scams and frauds.
As we discussed in a previous post, many people’s struggle to make confident financial decisions stems from what they were taught — or not taught — about money as children and young adults. This hesitancy can be compounded when dealing with sudden wealth. If you’ve received an inheritance or other windfall, know that it’s normal to feel overwhelmed or unsure where to start. The most important thing is to not let fear or uncertainty lead to inaction. By taking the first step of seeking professional guidance, you can begin to transform your sudden wealth into lasting financial security.
If you’ve experienced a sudden wealth event and need guidance, our team is here to help. Reach out to us anytime to start the conversation.