Sudden wealth can come from many places: the lottery, winning a lawsuit, a divorce, an investment, selling a business, or getting an inheritance. While it’s a very pleasant fantasy, the reality may be completely different!

This statistic is what you need to understand:

“Instead of finding themselves in the lap of luxury, 70% of people who come into sudden money are broke within a few years,” according to the National Endowment for Financial Education.
Seventy percent!

You may be thinking your sudden wealth will make all your debts go away and you can have fun shopping, and you’re right, you can. But that is the mindset that can start you on the road to disaster – meaning bankruptcy!

The first thing you want to do is relax and celebrate your good fortune. Express your gratitude and be happy you are blessed financially.

It’s a good idea to take a breath and get a good massage, just to relax you and slow you down so you can create a plan.

The typical thing that lottery winners do is call all their friends, have a party, go to the mall, go to the car dealership, and start looking at houses. That is NOT what you want to do!

Let me ask you a question – what is your goal for the money? Do you want to continue to have this money at the end of your life OR do you want to have a good time for a little while and blow it all? Because if the latter is your answer, you’ve just started yourself on that path to spending and spending will lead to running out of money at some point. I don’t care how much you have. Don’t believe me? Patricia Kluge divorced a billionaire and inherited over a billion dollars herself, then went on such a spending spree she went bankrupt! Although that might seem impossible to you now, together let’s think about how fast you could spend through the money.

First of all there are taxes that have to be considered and people forget that. Then, if you buy multiple homes, you need people to look after them when you’re not there. You need staff to take care of them. You also need staff for a yacht. Pretty soon you have 5 houses and 55 staff on payroll for maintaining all these things. You have to manage all those people and things. It’s a full time job. Then you have to insure all the items. Furnish and repair the homes. The list goes on and on until one day you wake up and there’s no more money to spend. IT’S ALL BEEN SPENT!

Ok, let’s go back and start over. You need a plan. Your plan is going to start with the end in mind.

How much money do you want to have when you die?

That’s where you have to start. If you don’t plan for that, you won’t have the money at the end of the road. It won’t…just…happen. You have to prepare and execute a plan.

Let’s say you inherited $20 million. If your goal is to still have $20 million or more when you die, then there are specific actions you must take.

You must have the mindset of an investor and not a spender. The two goals are at odds with each other. You cannot do them both. Getting your mindset right is super important. You want to have the mindset that you are a steward of your money, not that this is some blank check to fund a shopping spree!

So let’s assume you want to keep the money and you will be an investor. The first step in your plan is to assemble your team. Your team will consist of an attorney, an accountant, and at least one financial advisor if not more.

You will want to check their backgrounds or get a good referral from someone else who has wealth. Check their reputations with multiple sources. Check on the attorneys with other attorneys. Check on the financial advisors with other financial advisors. Ask the attorney for the name of a financial advisor and financial advisors for the names of attorneys. They often know of each other.

The second step is to pay your taxes. Consult with your accountant to pay your taxes promptly and make any plans for future years, such as if you sold a business and are being paid in installments. Plan to set aside money for the future payments.

The third step is don’t tell ANYONE about your money! Don’t ever say HOW MUCH you received. People talk and word travels fast. People you don’t even know will end up gossiping about your new fortune.

In America, people who try hard to look like they have money often don’t. It’s tempting to show wealth – that’s how the nouveau riche got a bad rap, by showing it all by driving Ferraris and being very flashy. Old money doesn’t have to prove they have it, and they’re used to having it for generations, so they put their money into assets rather than flashy things. Your goal is to act like old money instead of new money! With your new wealth, if you make the right decisions, you will be able to steward money for generations in your family if you choose to. Your future generations can say they come from “old money.”

The fourth step is to not do anything for a few months. When my husband died, people said don’t make any major decisions for 6 months and that was very good advice. I’d say the same thing about sudden wealth. Don’t quit your job or move for at least 3 months. Give yourself some time to adjust to having the money. Get over the impulsive feeling of going on a spending spree.

Step 5 is allocate 5% to spend. Take 5% and make a list of what you’d like to spend the money on. Take a good look at the list and consider the insurance, maintenance, repairs, staff and other items it may entail. Give a lot of thought to what you want to buy so you don’t become an impulsive spender of items that don’t have any priority to you. I think a great idea would be to check yourself into a spa program for a week. Give yourself the gift of time to think, meditate, walk around and pause in a relaxing way before you make any major decisions.

Implement your spending plan after giving it good thought. If you want to fly by private plane, maybe you can do with a Net Jets Marquis card for $250,000 instead of becoming an owner of a $5 million plane, which will cost a lot to maintain and will depreciate.

Do your planning to spend your 5% on paper first. Live with it for a few weeks and see if you still want it.

Step 6 is to research, don’t just pay retail! If you are buying a new home, don’t just offer the full price because you can afford to! Be savvy and negotiate. No one respects someone who is a fool with their money and you know what they say, a fool and his money are soon parted! Be savvy, look for deals, the wealthy never pay retail and cash is king.

Step 7 is to work with your financial advisors to diversify and invest 95% of the money. I would encourage you to look at cycles before you make any investments. What investments are high priced right now and have less potential to appreciate? Which investments are low right now and have a lot of potential to appreciate? What is the right mix or asset allocation of assets so you are not overly invested in one asset class ie. you don’t want to have everything in stock, bonds, or real estate. Diversify to protect your wealth (step 6 to wealth). Of course you want to pay off debt and not take on new debt, but you already knew that.

Step 8 is to set up a donor advised fund. This is a lot less expensive and requires no administration like a charitable foundation does, yet you get all the tax benefits. A donor advised fund may also save you capital gains taxes, depending on how you became wealthy. Let’s say as part of an inheritance you own a piece of property and a rare mineral was found on it. You inherited it at a cost basis of $1,000,000 and it’s now worth $10 million. You may be able to donate the land to your donor advised fund at your original basis of $1 million, they will then sell the land for $10 million and you won’t have to pay any capital gains tax! You get $10 million in your charitable account to give away tax free and when you make gifts you are making a charitable donation so you get a tax deduction! It’s a very powerful strategy. Fidelity investments offers them. You can go online and research them or open an account.

Number 9 – don’t assume this doesn’t apply to you! Don’t be the person who knows the right thing to do and doesn’t do them because those rules only apply to everyone else. You won’t spend all the money, only other fools do, right? But if you are spending and not investing, you are on the same path!

There’s an old saying: To know and not to do is to not yet know. Meaning if you say you know it and don’t do it, then you don’t really know it.

Follow my guidelines and you will prosper and your money will prosper. Don’t follow my guidelines and I guarantee you will eventually either find yourself in the same position you’re in financially right now or worse off.

As Einstein said, and I quote loosely, the same thinking that got you to this place will not be the same thinking that gets you to a different place! You have to think differently to get you to a different place.

Even money that seems like soooooo much can run out. Don’t let that happen to you. Be a steward of your money. Plan to have it when you die and follow my 9 steps.

In review, they are:

1. Assemble your team.
2. Pay your taxes.
3. Don’t tell anyone about your money.
4. Try not to make changes for 3 months- don’t be impulsive to quit your job or move.
5. Create a plan to spend 5%.
6. Research it – don’t just pay retail.
7. Invest 95%.
8. Set up a donor advised fund to give money to charity, avoid paying capital gains tax, and get a tax deduction.
9. Don’t say, this applies to others but not to me.

Your action step to is to create your investment plan and your spending plan for the 5%. Decide your investments, write them down, decide what you want to buy, and what your budget is. Having it written on paper or in your wealth journal will be a good way to get started.

There you have it. These 9 steps will help you steward your sudden wealth. As Dr. Spock would say, live long and prosper!

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