Now that the markets and economy has stabilized and estate sizes may have changed, as well as the...
There’s the typical, gradual way that wealth builds over time – work, save, invest, repeat – earning income and saving for retirement, building a nest egg. It’s slow, steady, and consistent like the tortoise in “The Tortoise and the Hare”. As this net worth grows, so does the knowledge and skillset required to build and manage it. This process allows time to adapt, adjust, and overcome challenges along the way until, eventually, the financial sophistication is there to effectively steward the net worth built. This process is nice and smooth like a long road trip leading to an ultimate destination that you are fully prepared to enjoy.
Then there’s sudden wealth. This is like going from zero to who knows how fast in a rocket ship to an unknown destination. Sudden wealth can happen in seconds with no time to prepare. It’s no wonder there’s a thing called Sudden Wealth Syndrome. Sudden Wealth can be different things to different people. There’s no minimum dollar amount to qualify. The distinguishing factor is that it is sudden money, and the amount is large enough to push you out of your financial comfort zone. Sudden wealth can be overwhelming as it thrusts you into a new, unfamiliar, and often uncomfortable situations or environments. This is where Virtus Wealth Management can help.
Your Life. Your Wealth. Connected.
Virtus Wealth Management regularly works with individuals who have experienced a sudden wealth event such as:
- Lawsuit settlement
- Trust distribution
- Sale of business
- Liquidity event from an IPO
- Divorce, and more.
We work with our clients to develop a strategy and establish a team of advisors (sudden wealth advisor, tax preparer/accountant, insurance broker, estate attorney, and more) to make the most of their financial windfall. We help you look at the big picture by coordinating the actions and recommendations from each professional on your team. This way all of the different facets of your finances work together efficiently and nothing gets overlooked.
Our Connect Wealth Process is holistic and ensures that all areas are covered (Goal-Based Planning and Advice, Retirement, Cash Flow, Risk Management, Investing, Taxes, Estate Planning, and Equity Planning). We offer more than just investment advice; we offer planning capabilities for life.
According to an MSN article, “as many as 70% of those who come into sudden wealth end up losing it all because of their inability to deal with the practical, financial and emotional issues involved.” In fact, research from The Ohio State University found that one in three people who received an inheritance lost all of their savings within two years. Unfortunately, examples like this are everywhere.
Don’t be a statistic. Get a Sudden Wealth expert on your team to help make your financial windfall last a lifetime.
Sudden Wealth – Now what!?!?
Your sudden wealth is here or perhaps you know it’s coming soon through an inheritance, business sale, or IPO. Now what? How are you going to handle it? Are you going to end up bankrupt, as many others do after receiving a financial windfall or will you be able to handle the emotional jolt with responsibility and discipline?
Research in the fields of neuroscience, psychology and sociology found that receiving even three months’ salary in the form of a lump sum could be enough to cause an emotional chain reaction.
That’s why we believe it’s important to understand the psychology of sudden wealth — and have a plan in place to proactively manage the financial and personal burden that comes with it.
5 Steps To Sudden Wealth Management
1. Decide what’s important to you.
The first thing you want to consider is what’s important to you. What does your dream look like? First, think big picture. Will this money be life-changing? How do you hope it will change your life? Who will you share it with, if anyone?
Next, start to envision some of the details. We recommend focusing first on any immediate financial needs you have been delaying because of a lack of resources. These basic needs could include debt or a mortgage repayment. Make a list of these basic needs — that’s where you’ll be spending your newfound wealth first.
2. Assemble your team of advisors.
Now that you’ve figured out your basic needs, it’s time to assemble your team of advisors. Especially if this is a life-changing amount of wealth, you’ll want the right team of professionals to guide you through this next phase — without making costly mistakes or succumbing to common emotional pitfalls. These professionals may include a: sudden wealth advisor such as the advisors at Virtus Wealth Management, tax preparer/accountant, insurance broker, estate attorney, and more. The important piece to remember is you’re not alone. We are here to help.
3. Create a wealth management plan.
Once you’ve decided what’s important to you and your team is assembled, it’s time to create a comprehensive wealth management plan. This is where our Virtus Wealth Management, Connect Wealth Process comes in. Our Connect Wealth Process is holistic and ensures that all areas are covered (Goal-Based Planning and Advice, Retirement, Cash Flow, Risk Management, Investing, Taxes, Estate Planning, and Equity Planning).
As your sudden wealth advisor, we will be the quarterback of your wealth management plan, ensuring everyone works together to help you win the long game. We will also use this time to explain concepts and strategies to you to build your financial education and even encourage you to study on your own. It’s important for your financial acumen to catch up to your wealth for long-term success, and we will facilitate that process accordingly.
You’ll likely have major decisions to consider upfront. If you have control over when and how you’ll receive your windfall, for example, we will use our planning process along with your tax preparer/accountant and estate attorney to help you make that decision and mitigate potential consequences. It may be best to set up business entities for protection and/or tax purposes. We will identify those opportunities, when necessary, provide you with the information, and assist you through the process should you decide to proceed. We will also use our planning process to help you determine your short-term goals, long-term goals, and cash flow needs. You may be able to suddenly quit your job and live a completely different lifestyle. Or you might continue living a similar lifestyle, with more security and confidence in your financial foundation. Who knows?
We will partner with you to develop a wealth management plan that works for you so that you understand the big picture, avoid potentially making emotional decisions that you’ll regret later, and are on your way to turning sudden wealth into lasting wealth.
4. Solidify and implement.
Now that you have a plan in place, and your team of professionals are actively guiding you, it’s time to pause. Sleep on it. Take time to relax and reflect. Then revisit your plan and see what comes up. Is it in line with the life you want? It takes time for your mindset to absorb information like this. Sudden Wealth is a big shift. Take all the time you need to adjust and solidify your plans.
And now finally, you’ve reached one of the most rewarding steps of receiving and securing sudden wealth. You know where you are, you know where you’re going, and you know how to get there. Your Wealth Management Plan is your GPS; use it. It’s time to take that trip, enjoy the ride, and have some fun.
5. Monitor. Stay Connected.
The problem with a financial plan is that, almost as soon as you create it, it’s out of date. That’s okay, and it’s to be expected. It doesn’t mean that you need to constantly make changes, but it does mean you need to keep up with what’s happening.
In practice, this means meeting with your sudden wealth advisor regularly (or more often if events in your life have changed). At Virtus Wealth Management, we meet with our clients quarterly and discuss life updates, portfolio performance, investment strategy, economic/financial update, objectives, cash flow, and goals. We also have the capability of running a real time analysis and stress test of your plan to ensure that you stay on course. We use this if you are earning less or spending more than originally projected and recommend adjustments if necessary.
At Virtus Wealth Management, we also have a Virtus Portal that allows our clients to instantly view their net worth and investment allocation.
Pro Tip – Consider Giving
Receiving money suddenly can open a lot of doors and opportunities. Now might be a good time to pay it forward and give back. The emotional benefits of giving can be priceless, and you might even get a tax break. Be sure to coordinate with your tax advisor and sudden wealth advisor to make sure it aligns with your plan and that you are maximizing all possible tax benefits.
Whatever the source of the sudden wealth, it’s yours now. Relax, take a deep breath, and follow these five steps to ensure you are making the best financial decisions you can.