If you have or believe you are going to receive an amount of money that you define as “life-changing,” I’d like to share some thoughts with you.  These are hopefully thoughts that will give you comfort as well as caution when dealing with a new financial position.

Receiving “life-changing money” could be in the form of a gift, an inheritance, or the cash proceeds from the sale of an asset like a business or piece of land.  If this happens to you, it can put you in a new and very unfamiliar position.  Many are surprised by how many people now want to be your “friends” or have an “investment opportunity” they want to discuss with you.  And even if these external influences don’t lure you, it can be tempting to break out your lifetime “wish list” and immediately start on a personal shopping spree.

Before you think I’m going to tell you not to spend any of your money, let me surprise you.  I advise my clients to have some fun in life that’s afforded by their finances. You literally can’t take it with you, and I believe we are called to do meaningful things in life.  That can be a family trip, having a boat you can take a child or grandchild fishing on, or providing a better quality of life for a dependent. One of my personal beliefs is that any parent who has the means should take their kids to Disney. It’s a memorable experience for both parent and child. 

With that being said, it’s important to realize that sudden wealth can also create problems in your life and the lives of those you love.  For example, the average lottery winner is back to their prior financial situation within five years.  They are generally not prepared to manage their newfound wealth.  I’ve seen inheritances from parents who saved frugally all their lives wasted, sometimes in a matter of months, by an unprepared heir.

So how do you prepare for a life-changing money event?  I recommend two actions for those who have or will receive a dramatic change to their finances.  The first is to practice delayed gratification.  You may be able to buy that new Porsche, Mercedes Benz, or Range Rover, and that’s fine.  Just don’t make the dealership your first stop after you have deposited the check.  (The same goes with a boat dealership or furniture store.)  Why?  According to a US News article, 9 out of the top 10 depreciating cars are luxury brand vehicles.  Just because you can do something doesn’t mean you should.

Secondly, learn to manage what you now have.  Someone who wins a lottery and nets $250,000,000 is in a very different position than someone who receives a $250,000 inheritance.  The average inheritance in 2018, by the way, was $69,000, according to a survey conducted by HSBC.  Proper investing, protection, and mindful spending of these funds have the potential to improve your life significantly. 

Depending on your new circumstances, you may have a great deal of important changes and complexity added to your life.  It is important to learn about ways to protect and invest these funds, and it is possible to do this while also reasonably enjoying the present.  If you are unsure of how to go about doing this, seek the advice of a trusted financial advisor.  After all, helping clients navigate life’s complexities is what we’re here for.