While the vast majority of individuals can only dream of receiving a sudden financial windfall, there was one fortunate Powerball player who purchased a winning ticket to Wednesday’s estimated $1.08 billion jackpot, according to lottery officials. However, it’s more common for everyday people to come into unexpected money through inheritances, business sales, or large work bonuses. These situations can be overwhelming from a psychological standpoint, and financial advisors recommend taking certain steps before spending any of the newfound funds.
Emily Irwin, managing director of advice and planning at Wells Fargo’s Wealth and Investment Management, states that the emotional rollercoaster experienced by those who win the lottery, inherit wealth, or undergo significant financial changes is strikingly similar in all cases. To combat this, experts suggest taking a “cooling-off period” to allow for rational thinking about how to make the financial windfall work. Andy Smith, executive director of financial planning at Edelman Financial Engines, advises individuals to find healthy ways to calm their emotions before making any immediate decisions.
It is also wise not to rush into major financial choices for at least six to 12 months, as these early decisions can have significant implications down the line. Paul Karger, co-founder and managing partner of TwinFocus, a wealth advisory firm, stresses the importance of avoiding impulsive actions with long-term consequences.
Instead of acting impulsively, it is essential to assemble a team of trusted financial professionals who can help navigate the complexities of managing newfound wealth. This process is similar to vetting and selecting a doctor. Irwin emphasizes the importance of finding professionals who have the individual’s best interests at heart and can chart out a comprehensive course for financial success. If a significant increase in wealth has pushed an individual into a higher tax bracket, it may also be necessary to expand the team and find new experts tailored to their specific needs.
Once a team of advisors is in place, it’s crucial to create a comprehensive plan that addresses various financial goals, such as debt repayment, retirement preparation, college savings, charitable giving, and estate planning. Such a plan serves as a reference point when friends or family request financial assistance, allowing individuals to gracefully decline or accept requests based on predetermined parameters and goals.
While it’s acceptable to indulge in some luxuries, it is important to avoid impulsive purchases. Consider the long-term costs, including maintenance, property taxes, and other expenses associated with high-end purchases like homes or boats. Irwin advises individuals to understand both the immediate and ongoing costs of these purchases before committing.
Ultimately, individuals who receive unexpected wealth should strike a balance between enjoying their newfound assets and practicing responsible financial stewardship. While it may be tempting to splurge on extravagant items, such as a luxury vacation home, it’s important to weigh the ongoing costs and consider alternative options like renting. It’s also acceptable to treat oneself to a desired item or experience, but it is wise to set limits and save the majority of the newfound wealth for the future.
In conclusion, receiving a sudden financial windfall can be a life-changing experience. To make the most of it, take the time to process the emotions, assemble a team of trusted advisors, create a comprehensive financial plan, and practice responsible decision-making. By following these steps, individuals can ensure long-term financial success and make the most of their newfound wealth.
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