Tag: windfall

What to Do If You Win the Lottery

  1. Protect That Ticket and Take Your Time – make sure it is not lost or stolen before you collect your winnings.
  2. Don’t Quit Your Job Just Yet – you may not have the winner after all.
  3. Lottery winners attract people like bees to honey. These can be relatives, friends, strangers who heard about the winner’s good fortune. They want gifts (and you want to give them), they expect you to pick up the check. The most dangerous are the people who come to you with “deals” that will make you even richer. One of the best ways to handle this is to refer everyone to your financial advisor; explain that he’s the person who’s handling yo21ur finances. That way you are not the one turning anyone away.
  4. Hire Professionals – you can afford it.
  5. Change Your Address and Go Unlisted – you’ll have lots of people who want you to share your good fortune.
  6. Lottery winners have tax issues that they never had before. Before accepting that check, it’s a good idea to organize a small team – quarterbacked by your financial advisor – that includes a including a CPA and an attorney.

Buying a lottery ticket is not a wise investment. If you beat astronomical odds and win, you are the same person you were before even though people will suddenly find you incredibly witty, smart and good looking. But if you must buy a ticket – and win – keep these ideas in mind.

Finally, listen to the advisors you hired, pay off any debts, put money aside for the future, make contributions to charity and learn to say no.

 

What Rich People Need to Know

I ran across an article at Market Watch titled “Ten things rich people know that you don’t.”  It listed the usual things:

  • Start saving early
  • Automate your savings
  • Maximize contributions to 401(k)s
  • Don’t carry credit card debt
  • Live below your means
  • Educate yourself about investing
  • Diversify
  • Hire a qualified financial advisor

All of that is something to take to heart when you’re young and just starting in life.  But what do people who are already rich need to know?

Lots of people get rich without following the rules.  They may start a successful business, enter a highly compensated profession, climb the corporate ladder, win the lottery, become a sports star or inherit a fortune.   Once you are rich, the number one objective for most people is to stay rich.  One very successful financial advisor with just 28 very wealthy clients said

“People don’t come to me to get rich, they come to me to stay rich.”

That’s the role of a good financial advisor.   Their job is to  do more than manage their client’s portfolios, it’s to take care that all of the other boxes are checked off:  to diversify the client portfolio, to educate the client about investing, to see to it that they live within their means.  In many cases they take care of family issues, lifestyle issues; the kinds of things that family offices do.

It’s what we do.  It’s what our clients expect.

Have a wealth maintenance question?   Contact us.

Sudden Wealth Syndrome

The person who suddenly comes into wealth needs much more than financial planning.  Lottery winners, those who inherit wealth, people who sell a family business often fall prey to the “sudden wealth syndrome” and frequently lose what they have gained.  Sudden wealth recipients’ immediate concerns may have little to do with financial planning or investment strategies. Even people who know they’ll be getting money at some point—such as an inheritance—may significantly underestimate the amount. Failing to address the psychological ramifications of sudden wealth can lead to financial ruin.  The assistance that these people need is often more psychological than financial, at least at the beginning .

Newfound wealth is usually a very emotional thing and people usually make terrible financial decisions when they are emotional.  People who win the lottery or inherit wealth need to give a lot of thought and decide what they want their lives to look like.  Some of the dangers that these people face include:

  • Thinking they have more money than they do.   No matter how much it seems at the beginning it’s always a finite amount and can run out if not properly handled.
  • Windfalls are viewed very differently than money they that’s been worked for and therefore is often spent irrationally.  No one really “needs” a yacht.
  • Many immediately quit their jobs.  The problem then becomes: what are they going to do with their time.  This can lead to a “honeymoon period” where they go on spending sprees and find their lives empty of meaning.
  • They become suspicious, including suspecting their advisors of being more interested in their money than them.
  • They are barraged with business propositions, requests for loans and the like.   This is where a trusted advisor can help.  I recently had a portfolio review with one of my clients who is a doctor.  Physicians and surgeons are constantly barraged with business and investment proposals because they are viewed as wealthy.  I offered to review these proposals for him and tell him which ones were legitimate, reasonable and appropriate for him.  An advisor should be willing and able to do the same thing for those who have acquired sudden wealth.

Advice to those who achieve sudden wealth.  Don’t do anything sudden.

Smart Ways to Manage a Windfall

Whether you have received an inheritance or won the lottery, before you splurge, take time to consider all the financial angles and come up with a solid plan.  There is a reason most lottery winners wind up broke.  Shady financial advisers may shower you with dubious investment schemes. Long-lost relatives could reappear with hard-luck stories. You might be tempted to quit your job, buy a more expensive house or make other costly decisions that could make your jackpot quickly disappear.  The bigger the jackpot, the greater the chances that you will be the victim of bad decisions.

Many people view a windfall as “found money” and treat it differently than money they’ve earned.  They’re much more likely to use it in a way they’d regret.

Win or inherit enough and banks will lend you enough money to put you in debt.  Yacht brokers will call, as will Realtors will call who have your dream home on the market.

Some financial planners advise waiting  until you give yourself time to come up with a solid plan for how you’ll use the money.   If your inheritance includes an IRA, there are special rules that you will want to consult with financial planners on.

The biggest mistake people make with a windfall is not figuring out how to make the money last.  If the money is big enough, assemble a financial team that includes a financial planner, a CPA (certified public accountant) and perhaps a lawyer.  If you are unaccustomed to handling large amounts of money, a financial planner is the most important part of the team.  You will want to do a search of planners who have a CFP™ (Certified Financial Planner) in their title, and someone with whom you are comfortable discussing your personal financial needs and goals.

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