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Sudden wealth can face serious emotional and financial problems

Sudden wealth can face serious emotional and financial problems

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Money, despite all the opportunities they provide, can be a serious source of stress and anxiety if you are not used to having them.

Sudden wealth, regardless of inheritance, career win, or lottery luck, can create serious emotional and financial problems for people who haven’t had much money in their lives.

“Will you keep working? Buy a new home, a private school for the kids?” said Barry Glassman, a certified financial planner and founder and president of Glassman Wealth Services, in Vienna, Virginia. “Sudden wealth offers more choices, but it can cause a lot of problems and worries because of the large number of decisions that need to be made.”

More of the changes in life:

Here’s a look at other stories that offer a financial perspective on important life stages.

Consider professional athletes. A study conducted by the National Bureau of Economic Research in 2015 found that 15.7% of NFL players filed for bankruptcy within 12 years of retiring, despite the fact that many of them earn millions of dollars in their career. A staggering 78% of retired players were in serious financial position just two years after leaving the game, according to Sports Illustrated. Only slightly better statistics were in professional basketball players.

Young athletes who become millionaires overnight are not the only ones struggling with success. People who receive large sums of money often have difficulty managing them well. So what should you do if you get an unexpected profit?

“Don’t do anything for a good year,” said Cheryl Gareth, CFP and founder of the Garrett Planning Network in Eureka Springs, Arkansas. “Don’t call a financial advisor and don’t tell people the details, except talk to a good tax lawyer.”

Glassman has the same advice. “Don’t buy anything, don’t invest and don’t pay off debts,” he said. “You can make those decisions in a matter of months.

“One thing you need to do urgently is meet with tax professionals to discuss the taxability of your windfall income and the preservation of taxes in your new circumstances.”

Of course, many decisions will have to be made, many of them very happy. However, a large amount of money will almost certainly lead to some emotional problems for people who are not used to having significant wealth.

Stories about the troubles of lottery winners are true. Big money can change the expectations of family and friends from you and can seriously challenge a close relationship.

“When it comes to money, someone in the family and friends will have problems,” Gareth said. “It could be a recipient of unexpected income, or it could be a brother-in-law who feels he deserves it.

“People are getting greedy,” she added.

We tend to think that large sums of money will last a long time.

Cheryl Gareth

founder of the Garrett Planning Network

Gareth also warns people to beware of the illusion of large numbers. The situation she often sees is related to clients offering ransom pensions with fixed payments. People offered a payout of $ 400,000 versus $ 2,500 a month for the rest of their lives usually take a lump sum, even if the monthly payment makes more financial sense.

“We tend to think that large sums of money will last a long time,” Gareth said. “There’s so much motivation to take a large lump sum and so many wanting to wean us off that money.”

Even people who experience much greater gains face challenges of effective management. Glassman has customers who have sold businesses for millions, and they also buy things and make investments that suck out their wealth in the long run.

“I had a client who got $ 15 million after selling his business,” he recalled. “He set aside $ 4 million to buy the property, and he has $ 11 million left and $ 100,000 in new annual expenses.”

Not that you don’t have to buy a house, car or boat for yourself or for someone else if you really want to. The problem with sudden luck is not to spend money too quickly, generous to family and friends with gifts or make bad investments. This does not guarantee that your newly accepted wealth will be sustainable. In other words, you need a financial plan.

After “doing nothing” and consulting with a chartered accountant, your next step should be to find a good financial advisor to help you manage your wealth and make sure it lasts.

“The challenge is to prioritize what’s important to you,” Glassman said. “You can pay off student loans or buy a house for mom or a motorcycle for yourself.

“As a rule, it can’t be for everyone,” he added. “A good financial advisor will help you rethink these priorities and make you work hard to achieve your goals.”

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