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How to Recognize and Avoid Sudden Wealth Syndrome

How to Recognize and Avoid Sudden Wealth Syndrome

It’s hard to imagine sudden wealth being a bad thing. Few of us would turn down a winning lottery ticket, an unexpected inheritance from a long-lost relative, or a cash bonus from an employer. Most of us have already fantasized about how we’d spend it. Nevertheless, sudden wealth syndrome is a very real condition that often presents itself in people who receive an unplanned financial windfall. Since it can lead to potentially negative outcomes, it’s important to be able to recognize the signs.

What Is Sudden Wealth Syndrome?

Sudden wealth syndrome (SWS) refers to the psychological stress or identity crisis individuals who abruptly acquire wealth often experience. For many people, sudden wealth may come from a large inheritance, a divorce settlement, or the sale of a business. However, the recent explosion of bitcoin millionaires suggests that SWS is becoming a relevant concern for casual investors, as well.

Sudden wealth syndrome can manifest itself in a variety of unfavorable ways. For example, some people isolate themselves from family and friends. Others become paralyzed by the fear of making a wrong decision. Still others behave impulsively, making decisions they later regret. Regardless of the symptoms, sudden wealth syndrome can prevent you from living a full and prosperous life.

How to Avoid Sudden Wealth Syndrome

Fortunately, sudden wealth syndrome is preventable. If you begin to spot its signs, there are concrete actions you can take to adjust to your new financial status and make sound decisions that support your values and goals.

#1: Take a Beat

When you first come into new money, you may be tempted to buy all the things you couldn’t previously afford or pay off lingering debt. However, this is also the time when long-lost family members and friends tend to come out of the woodwork to ask for financial support.

It’s natural for your emotions to run wild initially. The key is to not let them affect your ability to make good decisions. Instead, hit the pause button. Spend a few months adjusting to the idea of having wealth and what that means for your future. Moreover, make sure you’re mentally prepared to meet the challenges and opportunities that await you.

In the meantime, keep your cash in a savings account or money market fund so you don’t feel pressured to make any decisions before you’re ready.

#2 Assemble Your Financial Team

The idea of hiring a team of advisors to help you manage your money may feel overwhelming in itself. However, a well-rounded team of specialists can help you protect and preserve your wealth for the long term.

For example, your financial team may include:

  • An attorney who can establish appropriate legal entities to protect your assets.
  • A certified public accountant (CPA) who can advise on near- and long-term tax considerations.
  • A fiduciary financial advisor who can help you identify your financial goals and develop a long-term financial plan to meet them.

You may already have relationships in place that you can leverage to help you accomplish your financial goals. If not, give yourself enough time to interview potential candidates until you’re confident you’ve found a team that will act in your best interest.

#3: Set Financial Goals and Develop a Long-Term Plan

If you’re suffering from sudden wealth syndrome, you may feel like your finances are controlling you. However, as you set goals and develop your plan, you’ll realize that you’re actually in control of your finances.

Financial goals can include anything from paying for your children’s college education to buying a vacation home. As a recipient of sudden wealth, you may find that once lofty goals are now well within reach. In other words, you may need to reevaluate your objectives and set a few new goals. For example, you may want to explore a charitable giving strategy or revisit your estate plan.

Once you set your goals, you’ll want to develop a financial plan and investment strategy that support them. These will serve as your roadmap for navigating future financial decisions. Moreover, adhering to a plan will help you avoid letting your emotions take over.

#4: Be Present and Enjoy Yourself

Finally, don’t forget to enjoy your new financial status. Sudden wealth can create stress, but it can also alleviate it. While money alone doesn’t make us happy, it does give us the freedom to pursue what’s most important to us. So, if you previously found yourself consumed with anxiety about the future, give yourself permission to finally put those fears aside and enjoy what you have.

Of course, you don’t have to wait until the signs of sudden wealth syndrome appear to take action. If you’ve recently come into sudden wealth and want to speak with a financial advisor about next steps, we encourage you to contact us. We can help you develop a plan that supports your goals and ambitions while preserving your newfound wealth.