After nearly two decades of working with sudden wealth recipients, I recently published the book The Sudden Wealth Solution where I highlight the many tax, legal, financial, and psychological issues of sudden wealth. I’ve seen what works and what doesn’t. Navigating sudden wealth requires equal parts knowing what to do and knowing what not to do.
A version of this article originally appeared on Forbes
If you have just won the lottery, been notified you will be receiving an inheritance, or settled a lawsuit, your emotions and stress levels are bound to run high. We like to think of ourselves as rational, but under stress, we can quickly morph into irrational and highly emotional creatures who undermine our own success. Avoid making these all-too-common sudden wealth mistakes:
1. Making unnecessary decisions. Depending on the type of sudden wealth event, there may only be a handful of decisions you need to make early on. Work with a CFP® professional to learn which tax, financial, and legal decisions you must make and which ones you can delay. Bottom line, unless it is necessary, hold off on making a decision.
2. Spending money. There will be plenty of time to figure out what you want to do with your money, but this is not that time. You still need to know how much you will get after taxes and how much you can comfortably spend. If you are tempted, write it on your wishlist.
3. Promising anything or making commitments. If you just found out you will be receiving money, it is too early to make any financial commitments. Don’t make promises to friends and family. Again, it is too early to know what you have and what you can spend.
4. Sharing news with others. Keep your sudden wealth situation private. The fewer people who know, the better. You’ll get less unsolicited advice and you won’t feel the pressure from others. If possible, keep your lottery win anonymous.
5. Retreating. While you don’t want to broadcast your windfall to the world, you should avoid hiding. Keep up your social contacts and engage in the activities you’ve always enjoyed. This will help you stay grounded and the social interactions will help ease the stress.
6. Self-medicating with alcohol/drugs. It’s understandable that you want to take the edge off a situation that can be highly stressful, but it’s not sustainable and will only make your situation worse. There are many more healthful alternatives such as exercising, talking to friends, or participating in therapy that are more effective and that will set you up better for the later sudden wealth stages.
Sudden wealth can provide an amazing opportunity to create a better life for yourself and others. To best do that, set yourself up for success by making this stressful process a little easier. Breathe, slow down, and avoid these common sudden wealth mistakes.