Struck Money? Here's What To Do Next

A tremendous amount of wealth is being generated in the tech sector especially following the heightened mergers and acquisitions activity of 2015. More than 865,000 individuals created their wealth with tech, making up 16% of the U.S.’s millionaires. And while becoming a self-made millionaire is a dream for many, the reality of sudden wealth can actually bring with it a myriad of challenges that some may not know how to deal with.

“Sudden money can present a lot of unfamiliar challenges,” explains Lorraine Fox, Director- Wealth Management at Aspiriant. “People feel like they need to make immediate decisions.”

The stress related to new money is real. Psychologist Stephen Goldbart and Joan Di Furia coined the term “Sudden Wealth Syndrome” in the late 90s to describe a disorder he was seeing a lot during the dot-com era. “Twenty-nine-year-olds in Silicon Valley were finding that, suddenly, they never needed to work again, and started asking, ‘what is the purpose of their wealth and life?’” Di Furia writes. “They had no expectation of wealth, nor history of knowing how to live with it.”

While a new-money event can cause some anxiety, taking the following steps should help you through the process.

How to handle your good fortune

To make sure you’re making decisions that will benefit your future and help you in the long run there are few things you should do. Consider entering a decision-free zone.

Because large sums of cash can create an emotional tidal wave, it’s important to take some time to step back and examine both your situation and the potential consequences of decisions. “Without careful and objective third-party advice, emotions can often drive people to make decisions,” Fox says. Unfortunately, many emotionally-driven decisions can backfire.

Creating a time in which no decisions are allowed provide the room to make better choices. The idea of a “decision-free zone” was created by Susan Bradley in the book, Sudden Money: Managing a Financial Windfall. She suggests doing several things while in this zone, which include:

• Seek help and learning
• Determine what’s immediately needed and what can be delayed
• Make understanding tax consequences a priority
• Delay gifts
• Track cash flow

Think about your financial goals

Think about the bigger picture. Do you want to retire? Do you want to make sure your children are supported for the rest of their lives? Do you just want to buy several vacation homes?

“Many people in this situation think they have more money than they do,” Fox says. “You may have earned $1 million in stock, but that amount may not be enough to support a family and meet other goals throughout one’s life.”

Find a team of professionals

A common misconception is that those who have been skilled at building something that creates wealth will also be skilled at investing wealth. This is often not the case. But that’s ok. A team of financial, tax, estate and risk management professionals will help you plan the best actions for your money. You may also want to find people who can help you with the emotional side of your new wealth too.

When looking for advisors, it is crucial to find those with whom you feel comfortable and can discuss your experiences. Also consider looking for a financial advisor who is a fiduciary, as they are obligated to make recommendations that are the true best fit for your situation.

Develop a detailed financial and life plan

Your wealth management team will help develop a detailed financial plan to achieve your future goals. Depending on the firm you choose, you may be able to have your entire team of professionals in one location. This situation may alleviate some of the stress that comes with having so much to consider.

Relax

Last, take the time to appreciate your situation and look forward. Consider a short vacation where you can unplug, recharge and appreciate your situation.