How to Deal with Unexpected Wealth
You probably wished that someone could send you loads of money, but would you know how to deal with such unexpected wealth? Not many people can handle sudden wealth, especially if they are not accustomed to it. There are anticipated pitfalls associated with sudden wealth that you need to be aware of and sometimes, it occurs because you have no financial management skills.
Types of Wealth
Many individuals who build wealth successfully will usually do so steadily with hard work, dedication, planning and investment. However, for people receiving sudden wealth, the opposite is true. These people will receive large sums of money through various means such as:
- Large alimony
- Divorce settlement
- Legal claim settlement
- Inheritance from loved one
- Personal injury claim settlement
- Large sport contract
For inheritances, alimony and a negotiated sport contract, you may know the exact amount that you will be receiving, but for a legal claim settlement, divorce settlement, lottery and personal injury claim settlement, you may not know the amount to expect.
The Young Athletes
For young athletes, a large sport contract is something new. Without good financial background, the athlete receiving such large sum could exercise poor money management and subsequently lose it all before the end of their career. Many of these athletes will go out and purchase million dollar homes that they hardly spend much time in. Adding to the financial burden; some will purchase multiple vehicles with no time to drive more than one or two. It would be more ideal to buy a nice home, but with a lower price tag. Forget about the multiple cars – 2 or 3 vehicles are sufficient. The athlete should have one or two persons that they are accountable to financially.
Try not to get out of hand with your spending. Don’t buy things that you don’t have time to enjoy. It is best to prepare a financial plan, taking a deliberate approach to avoiding the usual pitfalls that come with unexpected wealth. Seek the help of a financial advisor and use the available resources that you have to ensure that you stick to a budget.
Avoiding the Common Traps
Did you know that one in six past NFL players file bankruptcy within twelve years of retiring? This has also happened to other sports figures. Lottery winners also have blown their winnings in a small number of years. Additionally, 70% of wealthy families will unfortunately lose their affluence by the second generation. There are money traps that you can avoid to know where your money is going. However, unwise spending is the primary culprit. For example, it would not be wise to purchase a million dollar home if you were to get a large sum of money in a divorce settlement. Remember that you have to factor in property maintenance and taxes, remodeling and the high utility bill that comes with living in a large home.
Forget about the designer clothes and shoes, the most current technical gadgets and the superficial things such as buying an expensive boat when you don’t know how to sail. These things will only depreciate over a short period of time. Think and plan ahead before making large purchases. Even though, you now have a lot of money, you should still manage and maintain a reasonable budget and plan for the future.