Do you often daydream about receiving a huge windfall? For most of us, being graced with such fortune remains a dream, but for those fortunate enough to have this dream turn into reality, they may come to realise that being rich overnight may not be all fun and games.
The Sudden Wealth Syndrome is quite a common syndrome that afflicts individuals who receive a huge windfall, such as winning the lottery, receiving an inheritance, or settled a lawsuit. It is an affliction most of us long to have.
As wealth increases, many often experience more stress which can quickly turn them into irrational and highly emotional individuals leading to overspending and overwhelming paranoia of people around them.
Decisions made while in this state of irrationality and paranoia are often poor and can lead to familial and financial ruin. Financial experts advise those who stumble upon instant wealth to avoid making big financial decisions for at least several months. It’s important to take time to process the change, so that you can make long-term and sustainable plans with the money.
According to Stephen Goldbart and his associates at the Money, Meaning & Choices Institute in an article published by the Huffington Post,there are a few phases to the syndrome:
- Honeymoon: People who first come into money feel powerful and invulnerable, resulting in spending sprees, buying things and making risky investments, which often lead to disastrous results.
- Wealth acceptance: The feeling of power and invincibility is now mixed with a sense of vulnerability and the realisation for the need to set limits.
- Identity consolidation: The realisation that their money doesn’t define them sinks in and they begin asking “Who do I want to be?”
- Stewardship: This is the final phase, where they have come into complete acceptance of their wealth and reached a mature resolution of what their money means to them. This is the stage where wealth planning should take place in terms of a personal, familial and philanthropic mission.
Cynics may scoff, thinking that this is a problem that they will not face, if they do eventually get a windfall. However, sometimes a sudden change in wealth can be overwhelming. By identifying these phases, instantly wealthy people can learn to adapt to new circumstances and be more responsible with their money.
“Life events such as inheritances are big transitions that require change management,” said Susan Bradley, a certified financial planner and founder of the Sudden Money Institute to Daily Finance.
This list of common instant wealth mistakes you should avoid
, adapted from Forbes.com, might give you a few tips on how to handle huge sums of money, when you eventually get a windfall:
- Making impulsive decisions – To avoid making unnecessary decisions when it comes to newly acquired wealth, engage the services of professional financial advisors, tax consultants and even lawyers. The general rule of thumb is to put off making any decision until a later time, if possible.
- Going on a shopping spree – If the first thing you want to do with your newly acquired wealth is to buy a mansion in Malibu, take a deep breath and seriously consider the pros and cons of doing so. Understand the implications of your wealth, such as taxes, before you spend them.
- Promising anything or making commitments – Take time to adjust to your wealth before making any financial or non-financial commitments. Avoid making any promises to friends or family during the initial stages of your wealth.
- Letting others know – Keep your sudden wealth situation private. If you really need to tell someone, only tell really close friends or family. The fewer people who know the better. This is to avoid unsolicited advice and pressure from others.
- Avoiding people – Lead a normal life, just like before. Being instantly wealthy does not mean you have to retreat from friends and family and go into hiding. Stay social and engage in the activities you’ve always enjoyed. This will help you stay grounded and the social interactions will help ease the stress.
Having money always beats not having any. Sudden wealth can open up tonnes of opportunities for you and your family members. However, it is undeniable that more money translates to bigger responsibilities. If we educate ourselves on the importance of financial matters and strive to be responsible, we can develop skills to cope with the pressures of sudden wealth.
