2 CRIPPLING RISKS & 3 THINGS YOU MUST KNOW
Most people might think it’s exciting, but you may have some mixed feelings about it. It’s common to be happy and relieved that you now have more money, and to be stressed out or worried about how you’re going to handle it, too.
You’ve got choices that you probably didn’t have before to make positive changes to your finances. If you’re like many Americans, you’ve got debt of some kind. Should you pay off all or a portion of it? If you have kids, should all or a portion be set aside for college?
Or instead, maybe this is the time to buy the larger house you’ve always wanted, launch your own business and stop working for “the man,” or travel the world and take a work break for a little while.
Money that comes in suddenly is often spent, seemingly, just as suddenly. But you don’t want to lose all the money you’ve just come into. Fortunately, you can plan how to work with your windfall without spending it all right away. By avoiding the mistakes that others make and choosing the right options, you have the chance to make dreams come true.
While there is plenty of DIY money management advice available, protecting and preserving sudden wealth is often more complex. The challenge you’re now struggling with is that you don’t know what you don’t know.
One size does not fit all when it comes to managing a windfall! Asking people who don’t have experience with this kind of money management could lead to disaster. In addition to money management, you need to manage expectations, including your own.
CRIPPLING RISK #1
Unexpectedly High Taxes
To paraphrase George Carlin, Uncle Sam loves you, and he needs money! Taxes are often confusing enough, never mind adding a significant amount of money into the mix. You’re probably already aware that you’ll need to pay taxes, but how much should you plan for?
Not only do your taxes depend on what type of windfall you’re benefiting from, they may also depend on when you take the distribution. The tax ramifications of your sudden wealth can be more complex than you might originally have thought.
Think objectively about what the personal results are of taking a lump sum versus a structured payout. If you have a spendthrift in your family, will the lump sum be too tempting to spend? Do you have a financial professional who can guide you on navigating the effects of your decisions?
CRIPPLING RISK #2
Damaging Family Relationships
Sometimes when a family member comes into money, other members of the family start lining up with their hands out, or they resent the newly wealthy person. You may even know someone whose money caused a big rift in their relationships, and you don’t want the same thing to happen to you and your loved ones.
People who suddenly receive significant amounts of money don’t always know where and when the ground will shift under their feet when it comes to family. You may believe that everyone will be happy for you, and later find out that’s not the case. There may be fault lines in your relationships that could crack under the pressure of your newfound wealth if you don’t handle them in the right way.
MUST-KNOW #1
Money Can Be A Double-Edged Sword
A significant amount of money has the power to allow you to live your dreams. It could be the seed money you need to leave your corporate job and ride out on your own. Or you may finally have the money you need to enjoy an interest that you couldn’t indulge in while you worked full-time.
By creating a wise strategy and making smart choices, a future that you’ve always wanted — but never thought you could live — could be within your reach.
On the other hand, you could very well end up worse off than before. So many sudden money lottery winners go bankrupt after receiving their windfall. It’s easy to think the money will last forever, but if you don’t take care of it, it won’t. You’ll need to learn how to manage it. Otherwise, it could slip through your fingers.
MUST-KNOW #2
A Lasting Legacy Can Be Yours…
If The Strategy Is Right
You may prefer to make a positive impact on the world with a portion (or all) of your newfound wealth. Charities, successive generations, educational institutions, and other groups can benefit from significant donations. You may also feel compelled to be a good steward of the money for a variety of reasons, and that’s another way to leave your mark.
Most importantly, you want to use the funds as tax-efficiently as possible. That way there’s more left for your legacy. The right techniques depend on several factors, including how you want to be remembered and whether you’ll want to have access to the money during your lifetime.
MUST-KNOW #3
New-To-You Asset Protection Strategies
Your sudden windfall can potentially help you protect your other assets and your family as well. There are a number of asset protection strategies for the wealthy that you may not have had access to before. They require a certain level of investment that you may now have.
Simply having your assets in your own name may no longer be a good solution. Smart estate planning is critical, and just like investments, cookie-cutter solutions will not work. Estate plans and other asset preservation techniques are very specific to your circumstances and desires.
You Don’t Have To Make These Critical Choices Alone
Suddenly coming into a sizable amount of money has the potential to change your life. Whether the impact is positive or negative is mostly the result of the choices you make. However, there is a way to use this money to help you build a lasting and solid financial foundation for you and your family.
You may be able to fund dreams or goals that you previously thought were too far away to reach. The options you choose in taking the payout and planning your investment strategies determine whether you make your dreams come true. Poor choices can deplete your funds before you even have a chance to enjoy them.
Understanding the risks and effects of all the moves you make with your newfound money is critical. Not only does this money have the potential to change your life, but potentially that of your family and later generations, too. That’s why it’s so important to develop a strategy and understand all the possible outcomes of your plan.
The sooner you shore up your strategy, the better. Some aspects of implementing your choices are time-sensitive, and taking action can help prevent the money from being squandered. Unfortunately, these things aren’t taught in high school or college!
This information is not intended to be a substitute for specific individualized tax advice. The content is developed from sources believed to be providing accurate information. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. Consult with your financial professional before making any investment decision.
Ari Baum, CFP® is the founder and CEO of Endurance Wealth Partners, with over 25 years of experience in the Financial Services industry. He brings his in-depth experience to Conceive. Believe. Achieve. for his clients.
Securities and Advisory services offered through Prospera Financial Services Inc. Member FINRA/SIPC.
Brokerage and Advisory accounts carried by Wells Fargo Clearing Services, LLC.
