Coming into a large sum of money can be a life changing moment for many of us. No matter what the source of the money or the circumstance in which you received it, your life has quite possibly changed forever. Here are some of the common pitfalls of newfound wealth and how to avoid and/or reduce them.
Lack of Insight (keep doing what got you paid in the first place, don’t change)
The first thing you should do when you receive a large sum of money is to look back. This may sound a little counterintuitive, but it is one of the most important steps. There is a saying that money does not change a person, it only amplifies who they really are. Looking back is a proactive approach to dealing with all the potential hardships that may lay ahead.
In most cases, whatever you did before coming into money led you to the point where you are now. If you received this money as a bonus at work, keep performing at the high level that got you the bonus. If you are a professional athlete, keep training and dedicating yourself to your craft in the manner that got you the contract in the first place. There are many other circumstances that could lead to a big payday but the important thing to do identify what you enjoy and what happiness looked like to you when your bank account was a lot smaller.
You will often find that what brings you joy costs a lot less than impressing others or doing what you think people with money should do.
Desire to Help Family and Friends
You must take care of yourself before you can take care of others. Often new wealth is followed closely by requests for help. This can often be a very conflicted time for most. One way to manage this situation is to install a barrier. This can be a spouse or another trusted advisor. The most important trait for this person to have is that they are not someone who has asked you for any financial assistance or offered you the opportunity to invest in anything.
This person should be in tune with your goals. Remember, it is not you are declining people’s request. It is your financial circumstance that dictates if this is something you can help others with. Your “barrier” should be able to articulate this to others. It is very important to understand that there is nothing wrong with truly helping others, just not to your detriment.
Lack of Goals or a Plan to Live Your Best Life
Now that you have identified what happiness looks like to you, it is time to decide what you want this money to do for you. This almost always ties exactly to what your idea of happiness was before you received these new funds. Is the money a piece to the puzzle of a long-term goal? Is your focus to protect it with minimal risk while earning even more money on top of it? Maybe you want to set it aside for a little while it appreciates a little more aggressively.
When articulating your goals, you should be focused entirely on what matters to you and nobody else. That does not mean your goals should only benefit you. For example, your goal may be to help your parents buy a home because that is important to you and there is nothing wrong with that. The point here is that your goals will be part of what dictates your actions and how you manage your money. A fee only financial advisor who also specializes in financial planning is a good resource for articulating your goals and putting them to action.
Listening to Qualified Advisors
One thing most successful people have in common is that they make use of and appreciate the counsel of qualified advisors. No matter what your goals or circumstances may be, it is imperative that you identify who can fill this role for you. Sometimes you may know them organically and other times you may have to hire them.
The most preferred attributes potential advisors should have are verifiable credentials as well as relevant experience. Even if you have the utmost confidence in the ethics and competence of your advisor, you should take the approach of “trust but verify” everything that they do for you. If the advisor is offended by this approach, it would be wise to reconsider whether he or she is the best person to fill this role for you.
Stay on Course (Hierarchy of Control)
After you have gone through the discovery process with yourself, it is important that you never lose sight of not only what is important, but to also prioritize these factors. This is very simple but extremely important at the same time.
When navigating the challenges of adjusting to newfound wealth you should understand which actions lead to which results. This is the hierarchy of influence, and the best path forward follows its logic. When trying to decide something new you should be able to trace all your decision making to this process.
- Your goals should have the highest level of influence on your decisions.
- Your decisions should always consider as many of your goals as possible before acting on them.
- Your actions will control the circumstances and status of your money.
- After using the first three steps properly, your money will allow you to have more options.
- Consult the hierarchy of control for your next major decision, and you will be alright.
In closing, more money does not necessarily have to mean more problems. Following a process to make this money work for you is the preferred action. In short:
- Know what you want
- Don’t give it away
- Make a plan to keep the good times coming (never go backwards)
- Listen to people who know what they’re talking about
- Control the money and don’t let it control you.
Some of these steps may be more difficult than others but they are essential to successfully navigating the potential hazards that come with a big pay day. Whether you are a professional athlete trying to manage sports finances, or you are entering a new phase in your life after receiving a substantial legal settlement, or just received a large bonus at work, new money does not have to be a nightmare, you just must manage it properly.