A sudden influx of money—the kind that comes from an inheritance, settlement, sale of a business, or similar big money event—can come with emotional strings attached. In fact, large paydays have such an emotional impact that therapists have begun referring to the phenomenon as sudden wealth syndrome.
While it isn’t a clinical diagnosis, numerous psychologists who’ve worked with individuals experiencing sudden wealth have noticed clear patterns. In many instances, a financial advisor can help you navigate some of the hurdles they’ve identified.
Disorientation and uncertainty
Sudden wealth can cause an identity crisis. More specifically, it can be disorienting and throw your daily habits into disarray. There are a few factors behind this.
First, new wealth tends to be linked to an emotional event. For instance, inheriting money often means you lost a loved one. Selling a business could mean you’re out of a job (and the routine that goes with it). These emotions can create a sense of: “What now? What next?”
Second, new wealth can change the framework you use to answer these questions. Previously, you might react to the loss of a job by looking for a new job. But with new money, that might not be necessary just yet.
On the one hand, your new circumstances might afford you new opportunities. On the other hand, it can be hard to wrap your head around what those opportunities are. Not having a clear vision for your future can be exciting, but it can also be disorienting. It’s common for newly wealthy individuals to feel choice paralysis or prolonged confusion.
Financial consideration: A financial advisor can help you better picture the options available to you. Maybe work is optional for you now… or perhaps you need to continue working because your inheritance won’t be accessible to you for some time. Ideally, you’ll wait to make any big purchases or lifestyle shifts until you fully understand the implications of your new money. This can help you avoid surprises or unintended consequences.
Strained relationships and guilt
Money can impact our relationships, both personal and professional. The source of your wealth may complicate this further. For instance, an inheritance could cause strained relationships with other family members who did not receive equal funds. A business exit might cause professional jealousy or create a lifestyle gap between you and friends who still feel chained to a nine-to-five.
People may also behave differently toward you; they might expect you to pick up the tab or start pitching you on business ideas or investment opportunities. While some of this may seem normal and not bother you, psychologists studying sudden wealth syndrome notice that over time it can lead to paranoia. Some newly wealthy individuals start to question the intentions of those around them.
Working with a therapist or counselor can help you navigate these changes. A financial advisor may be a helpful ally, too, as you establish boundaries and work through changing relationship dynamics.
Financial consideration: You may want to share your newfound wealth with family and friends—that’s a good thing! But you don’t want your generosity to unintentionally backfire. Every few years, news outlets recap the stories of lottery winners who’ve lost their winnings; sharing the winnings with family and friends (either willingly or unwillingly) tends to be a common theme.
That doesn’t mean you shouldn’t share. Rather, it’s important to be intentional about how and how much you share. For instance, you might set up 529 college savings accounts for the young people in your life instead of paying for a trip to Disney World. If your family is upset about an unequal inheritance, you might be able to create a trust that helps share the money while still protecting your funds and staying true to the wishes of the deceased.
Anxiety or fear
Perhaps you’ve read a few of those cautionary tales of lottery winners, musicians, or professional athletes who’ve lost large fortunes. Rather than serve as a cautionary tale, these stories can cause a different set of problems.
Sure, being worried that you’ll lose everything means you may not splurge on large purchases, but it can also lead to missed opportunities. Beyond that, it can interfere with your ability to look at your new money as a resource.
Financial consideration: The best way to avoid losing your new money is to create a plan for it. This means understanding the opportunities as well as the risks. A good financial advisor will work to understand your goals for the future, as well as your relationship with money. From there, they can explain various strategies for preserving and potentially growing your wealth. (Remember: Inflation will eat into your fortune over time, so you’ll likely want to invest a portion of your assets to help protect them from inflation if nothing else.)
The best way to do that—from the accounts (taxable, tax-advantaged, trusts, etc.) to the investments (stocks, bonds, private markets, alternatives, and so on)—may vary significantly from person to person based on circumstances and goals. However, the level of opportunity and the associated complexity, may be much greater than what you experienced prior to your sudden wealth.
If you’ve recently experienced a sudden wealth event and aren’t sure where to start, our advisors—and the team of experts we work with—may be able to help. Set up a consultation to go over any initial questions you might have.
