Whether you inherit money, win the lottery or win a huge settlement, a sudden change in your financial fortunes can be a shock to the system, and a really challenging thing to deal with. From lottery winners who blow everything on unsustainable expenses, to famous athletes who end up bankrupt, there’s a reason why a lot of people who get huge windfalls end up losing all of it in a very short time.
If you’re not mentally and emotionally prepared for what a change in your financial status will come with, you’re definitely doomed to make big, completely avoidable mistakes.
So, if you come into a lot of money, what do you need to do to make sure it actually creates long-term wealth? Here are ways to handle your newfound riches in the most level-headed way.
Fix Your Mindset
A huge part of how we treat and control our money has to do with what we believe about it and ourselves. There’s a reason why people who’ve gone through a sudden increase in wealth are advised to go for counseling. It’s a significant change, and taking it in stride requires quite a huge shift in your identity. If for example, you don’t believe that you feel worthy of wealth, it’s so much easier to squander it. Sometimes we also have to deal with the manner in which we got the money in the first place.
One of the ways people come into a lot of money is through a personal injury lawsuit settlement, where something like an accident or another traumatic experience leads to you winning a huge sum of money. Imagine how that might make you feel about that money – it might feel like money you don’t deserve, or money you have a negative association with. According to personal injury lawyer Todd Beauregard, a huge challenge people who win this kind of case often have is struggling to come to terms with how their financial fortunes changed. A therapist can be very helpful in overcoming this and moving forward to actually get something positive out of that wealth.
Gain Financial Literacy
If you’ve never had a lot of money in your bank account, going from that to say $500,000 can be a really jarring experience. One day you’re struggling and living paycheck to paycheck, and the next day, you can afford to buy luxury cars and other nice things. The challenge is that you can end up wasting money on things that really don’t build your wealth and look up a few years later and have nothing to show for your windfall. One of the most important things you need to do is gain some financial literacy so you know how to save it, how to invest and how to spend wisely. If possible, park the money in an account until you get this knowledge and then start taking action when you know what to do.
Make Good Decisions
When you suddenly have a lot of money at your disposal, it’s easy to make frivolous decisions without much consequence, except these costs can really add up and leave you with nothing. Making sound financial decisions will allow you to stretch that money and get a lot more out of it. For example, you can invest your money in something like real estate and live off the cash flow. You can buy a really nice car second hand, and you can focus on bettering yourself so that you’re a better steward of your money. All these decisions will reduce and even eliminate the regret a lot of people experience when they make a lot of money, but end up with very little after spending it all.
Money is a life changing thing. It might not buy happiness, but it can certainly solve a lot of problems for you and your loved ones. It’s important not to overlook the fact that going from very little money to a whole lot overnight can really challenge you, and lead to bigger problems. In order to avoid this, there are tools we have to put in place to prepare ourselves for wealth and learn what it takes to preserve it. Money can be something that’s here today and gone tomorrow, or it’s something that can change the trajectory of your family for years to come. Instead of spending instantly, consider taking your time and building the mental and emotional foundations that the world’s wealthiest people have so that you can handle money in a healthy way.
