September 6, 2024

I’m sure most people have had at least one fantasy about becoming wealthy overnight. On the face of it, it seems like a dream come true with no downsides. However, what most people don’t always realize is how difficult it can be to manage sudden wealth. It requires a change in mindset and an entirely new way of managing one’s money and assets. Most importantly, it requires an attitude of prudence and the help of executive financial planning experts. Without these, it can be all too easy to waste even a sizeable fortune in a very short time. With that in mind, here is a brief guide on how to manage sudden wealth. If you are fortunate enough to have acquired a lot of wealth in a short time, I strongly urge you to consider this advice.

Having acquired sudden wealth, you have now become a high-net-worth individual (HNWI). As such, you need to start handling your finances as other HNWIs do. Even if you have already implemented certified financial planning in your life and business so far, your approach will need to change now that you have become a member of this financial demographic.

HNWI financial planning consists of strategies that recognize the specific needs of wealthier people. It enables these individuals to manage their investments, plan their taxes and manage their insurance coverage. The financial advice and strategies that form part of HNWI financial planning include:

• Advanced investment and savings strategies
• A plan for wealth preservation and intergenerational transfer
• Asset protection and trust planning
• Tax minimization strategies
• High-value insurance planning

Financial matters such as taxes and investing cannot be handled in the same way for HNWIs as they would for people in lower net-worth groups. The more wealth you have, the more careful you need to be about protecting and growing that wealth.

What most people don’t understand is that acquiring sudden wealth can have significant psychological impacts. Psychologists have actually come to describe these effects collectively as Sudden Wealth Syndrome (SWS). This is a condition that arises from the overwhelming pressures of abruptly acquiring a fortune. Most people don’t even realize that there are any pressures associated with acquiring wealth. Some of the symptoms of SWS include isolation, paranoia, and even guilt. Relationships could suffer and, ironically, the individual’s finances could end up in a worse state in the long run as a result of the sudden windfall.

Even without considering the possible psychological fallout, people who suddenly enter the HNWI bracket have a tendency to behave in ways that can jeopardize their financial futures. Some of these behaviors include:

• A nonchalant attitude towards wealth: If a person had previously been inclined to pinch pennies keep a strict budget, they may suddenly be inclined to let all that go and start spending freely. This is dangerous because even large fortunes are not infinite.

• Misjudging the value of money: For someone who has only ever earned, say, $70,000 a year, $1 million can seem like an infinite supply of money. Sudden millionaires can thus tend to overestimate how much money and spending power they have now acquired. As a result, that $1 million can very quickly be spent.

People who become rich quickly can also find themselves being inundated with requests for loans or handouts from friends and family, or facing multiple business propositions. That can be extremely overwhelming, and the individual in question probably would not have any experience or prior knowledge that enables them to deal with it.

Knowing that managing sudden wealth can be difficult, the best way to manage a windfall is to enlist the help of a financial advisor or family CFO who can provide specialized sudden wealth management services.

Sudden wealth management is designed to help you deal with abrupt changes in your net worth and bank balance. We aim to ensure that sudden wealth changes your life as little as possible – except for the better of course!

LRVS Advisory’s wealth management experts work closely with you to help you navigate the tax, investment and insurance challenges you will face after an abrupt injection of wealth. We can help you make your money last and assist you in the careful management of that wealth. With your assets and investments being managed by seasoned professionals, you can let go of the pressures that so often affect new HNWIs. Your wealth advisor will work alongside accountants, attorneys, estate planners and other professionals in a planned and coordinated strategy to address risk, minimize tax liabilities, and optimize your investment portfolio.

If you would like to know more about how to manage sudden wealth and start talking to our expert financial planners, we would love to hear from you. Contact us today to find out more about our services.

*Disclaimer:

This article, provided by McAdam LLC (“McAdam” or the “Firm”), is for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past Performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this <presentation> is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax, or legal advice. Certain information contained in this report is derived from sources that is believed to be reliable; however, the Firm cannot guarantee the accuracy or timeliness of such information and assumes zero liability for any resulting damages. 

Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.

McAdam is an SEC registered investment adviser that maintains a principal place of business in the Commonwealth of Pennsylvania. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from such requirements. For information about McAdam’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.

This article is the sole opinion of this individual and is not indicative of the firm’s belief.