Many people with little or no experience handling large sums or dealing with the administrative and financial details of managing significant money are likely to find themselves confronted with all of those responsibilities and more. Whether it is through an inheritance, property sale or work bonus, collecting a large sum of money all at once is often both a source of great stress and rife with dangerous traps. Here are some tips for dealing with new-found wealth.
The first thing anyone who collects sudden money should do is stop. It is very easy to think of money as water and all of life’s problems as fires. The fastest way to go from a large amount of money to a large number of financial problems is to start recklessly spending. Give yourself a month before you do anything at all. The money will still be there.
Step two is hire an accountant and an attorney, and have the attorney draw up whatever paperwork is necessary to make the accountant’s work subject to privilege if possible. Do everything they say from day one. This step will save you unbelievable problems down the road. If your wealth comes from structured payment plan like a settlement, a service like myLumpsum.com might also be a prudent option depending on your circumstances.
Step three is to put the money somewhere safe. You don’t need to become Carl Icahn in a month. Dump everything into the most boring, dusty, leather sofa investment you possibly can. A nice fat 30-year treasury note is a good start. Don’t leave it parked in the bank. Banks have a habit of slicing off a chunk for themselves at random and frequent intervals. Wrap the money in a business entity while you’re at it. This prevents liability shenanigans.
Make No Promises
The truth is you really don’t know how much money you have yet. No matter how much you collect, or from where you collect it, you really don’t know how much you’ll have left three months or a year from now. So don’t promise anybody gifts, loans, purchases, co-signing, financing or anything else until you’re sure you can afford it. Nothing ruins things like misunderstandings over money.
After you have surrounded yourself with all the help you can find, and you’ve waited long enough to be sure you are making good decisions, if you can afford it pay off all of your loans. Every dime you save in interest is found money. It’s generally a good idea to keep a couple of credit cards around, but anything with a finance charge or interest should be paid off at once.
Put together a tax plan. This will heavily involve the advice of your accountant. Your attorney will have some suggestions as well. Consider a strategy that potentially could defer some taxes in lieu of acquiring assets. Anything that regularly generates income is gold-plated gold in this economy.
The best advice is to just take your time. There’s no rush. Important decisions require careful consideration. Give yourself room to do what is necessary and you’ll have a much easier time.