6 Tips to Manage Sudden Wealth, According to Experts

We’ve all pondered how amazing it would be to wake up wealthy, how an influx of cash could change our lives for the better.

Being handed a sum of money — perhaps through a successful investment, lottery winnings, a pay raise, bonus or an inheritance — can be life-changing. But all of the shiny new cash you get can disappear before your eyes without proper care.

It isn’t easy for most of us to come across large amounts of money, but once we have it, it can be easy to lose if we’re not careful. Money Talks News spoke with financial experts across the country for some advice on how to manage newfound wealth so you can make it last and enjoy it.

Here’s what they say.

1. Be quiet

Being a giving person is an amazing quality, but it needs to come with proper boundaries — especially when your charitable values affect your financials.

Michael D. Whitty, a certified financial planner and private wealth attorney, tells Money Talks News:

“Try to minimize the number of persons aware of the financial windfall. The more word gets around, the more relatives, acquaintances, and even strangers come around with their hands out. You have the rest of your life to be generous, and you will be. Don’t fall into the trap of being overly generous early and letting family and friends become dependents.”

Say yes to one person and you might eventually be doling out cash until there’s nothing left. Or, everyone knows you have money and becomes bitter when you refuse to share. It can be a lose-lose situation. You’re likely better off keeping the information to yourself and your spouse if you have one.

Certified financial planner and contributing expert at The Motley Fool Ascent Charlie Pastor says, “The most important thing to remember when facing an unexpected financial gain is to act rationally, and quietly use the windfall to bolster your financial security. As the saying goes, it is always better to move in silence.”

2. Slow down

Hopefully, you already have a budget and organized plans for your financial future, but those plans are based on your current income. A large influx of money can completely change your course, so don’t jump into anything too quickly. And that goes for things beyond a shiny new car.

Josh Nelson, a certified financial planner and founder of Keystone Financial, tells Money Talks News, “Pause and reflect: Before making any hasty decisions, it’s crucial for recipients of sudden wealth to take a step back and assess their current financial situation, goals, and values. Reflecting on long-term objectives can provide clarity and guide decision-making.”

Re-evaluate your long-term goals and how this new money can help you achieve or change them altogether.

3. Set your foundation

A bright financial future needs a solid foundation, and debt can leave you sinking if it goes unmanaged. And as is the case for 49% of Americans, not being able to cover unexpected needs and emergencies is another financial pitfall.

Pastor tells Money Talks News, “Check in with your emergency fund, and think about topping off your cash savings if you have less than three months worth of expenses on hand. You may also consider paying off high interest debt, putting an end to cyclical compounding and giving you a fresh start for future success.”

4. Don’t forget Uncle Sam

“Nothing is certain except death and taxes,” the famous quote goes, and unfortunately an unexpected influx of cash isn’t exempt.

Lucky enough to win the lottery? The IRS could take up to 25% of those winnings upfront and you could owe more at tax time.

If you inherit a large sum, the federal government won’t charge you an inheritance tax — not to be confused with estate tax — but some states do. So keep that in mind before spending too much of your newfound wealth.

“Sudden wealth often comes with significant tax implications,” Nelson says. “It’s essential to consider the tax consequences of various financial decisions, such as selling assets or transferring wealth to heirs.”

Also consider how taxes can work in your favor.

Pastor says, “Saving in tax-advantaged accounts, such as 401(k)s and IRAs are typically a good idea, but don’t stop there. Once you’ve maxed out your retirement plans, you can always save in an outside brokerage account earmarked for down the line.”

5. Live within your means

Your sudden wealth is best for things like savings and long-term security. It’s tempting to eat out more, go on vacations and buy yourself glitzy new things — but that likely isn’t sustainable.

On average, Americans spend about $300 a month eating out. Imagine how much more you could convince yourself to spend with that extra money. Every fast-food meal, delivery order and night out adds up. It costs you in the short term and in the long term when all your money goes to dining instead of retirement and other important saving goals.

Crystal McKeon, a certified financial planner and chief compliance officer with TSA Wealth Management, tells Money Talks News:

“My big picture advice to anyone who has come into a large amount of money is to be slow to expand your expenses. When someone gets a large influx of funds they often overestimate how much this money will pay for and how long it will last. They buy all the things they have always wanted and eventually find out they have overextended themselves.”

A new load of cash might mean you can afford a house, car or boat immediately, but McKeon explains that people often don’t consider the upkeep and maintenance costs that follow those kinds of purchases.

The average annual cost for a new car is more than $9,000, according to AAA. Maintaining a boat isn’t cheap either; owners can spend thousands on storage alone every season.

Plus, avoiding big, flashy purchases can keep your newfound wealth on the down-low.

6. Speak with a trusted professional

When you have a large amount of money, you want to be sure you are getting advice from a trusted and experienced professional. Someone unknowledgeable can give you flat out bad advice — even worse are the ones who know exactly what they’re doing. Scammers can prey on unsuspecting people and provide “investment” advice that does nothing more than line a con-man’s pockets.

“A sudden increase in wealth can alter your family’s destiny in unimaginable ways. Human nature would be prone to abusing this power and money, so stay calm and gather the professionals around you to secure and manage this wealth indefinitely,” Andrew Herzog, certified financial planner and associate wealth advisor at The Watchman Group, tells Money Talks News.

Professionals, plural. It’s important to get a team of people who are specialized in their fields and have your back.

“For instance, setting up trusts and estate planning with lawyers, finding tax professionals and accountants to manage bookkeeping and compliance, investment managers to preserve wealth and grow it over decades, planning for heirs’ futures, contributing to charities, etc.,” Herzog says.

There’s so much that goes into managing so much money. It can be overwhelming. So slow down, don’t make rash decisions and be discerning with whom you can trust.