If you’ve won the lottery, you’ve inherited a large sum of money or your income has drastically increased, you may feel as though you have more money than you know what to do with.
Receiving an unexpected windfall can often feel like a blessing, but it can come with some significant psychological downsides too.
If your new wealth has brought on feelings of guilt, isolation, or an unexpected fear of losing money, you might be experiencing what’s known as ‘sudden wealth syndrome’.
You’re not alone in feeling this way.
Grappling with a new financial status isn’t always the walk in the park people expect.
In this quick guide, we’ll take a look at how to avoid sudden wealth syndrome and how to manage your sudden windfall.
What is sudden wealth syndrome?
Sudden wealth syndrome is the mental and emotional stress that takes hold of people when they come into large sums of money.
Maybe you won the lottery, inherited more than you ever expected or received a large insurance payout.
It doesn’t matter how the cash came your way, you may be prone to experiencing some uncomfortable emotions.
Managing a sudden windfall is anything but easy… and that can lead to its fair share of problems. Sudden wealth syndrome can look like the following:
- Extreme fear of losing money
- Feeling alone and isolated from those around you
- Guilt that you have had this good fortune
- Pressure to share your wealth with others
- An unexpected identity crisis
While this is not an official psychological diagnosis—and there’s not a body of scientific research to back it up—anecdotal evidence suggests that it’s common.
How to handle sudden wealth syndrome: 5 simple tips
Since this issue can manifest differently in each person, it can be hard to spot.
So, if you’re lucky enough to have sudden wealth, it’s worth looking at our top windfall management tips.
1. Invest in financial advice
When we talk about how to handle sudden wealth syndrome, the most effective tip is to plan ahead.
Even the richest people in the world can mess this up.
Over in the USA, 78% of NFL players go bankrupt within two years of leaving the sport.
Why? Because these professional athletes are usually not equipped to handle such large sums of money.
When that cash flow ceases, they have no way of maintaining their lifestyle and the money slips through their fingers.
To avoid this problem, reach out to a certified financial planner pronto and get yourself some investment advice.
Your planner or adviser will help make the most of your new wealth and any future money that comes your way.
They’ll future-proof your finances and use smart strategies to help you build financial security.
The best advisers won’t just look at your windfall, they’ll explore your financial situation as a whole before helping you put a financial plan into place.
2. Spend with intention
If you’re not used to dealing with big pots of money, you may be tempted to splurge your newfound wealth.
Avoid falling into this trap. You might want an all-inclusive trip around the world.
You may fancy buying your best friends a house each.
You might want to eat in Michelin star restaurants every night of the week.
But there’s a certain finesse to managing a sudden windfall.
Splash all your cash now and you’ll end up back at square one with nothing to show for it.
Instead, try to be intentional with your spending.
Whenever I think “Screw it! I can afford it!” I remind myself of Paula Pant’s favourite phrase: “You can afford anything, but you can’t afford everything!”
Why is this relevant? Well, if you’ve received a financial windfall, you might assume you can afford to buy anything you like without realising it.
But all those unnecessary purchases add up and before you know it, you’ve got little to show for it.
So, while you can certainly treat yourself to a trip to Barbados or a new car, if that’s what your heart desires, there are dozens of other temptations that might not be worth it.
3. Deal with any red tape
Rubbing your hands in anticipation of your millions? Before you get the cash in your bank, you need to take a look at the terms and conditions associated with it.
Lottery and gambling wins are 100% tax-free. That means that you get all of the money that you’ve won. Yes, the total amount will soon be crash-landing in your account.
Inheritance, on the other hand, is a tad trickier.
Here in the United Kingdom, Inheritance Tax stands at 40% over the £335,000 tax-free threshold.
In layperson’s terms, that means that you pay tax of 40% on any funds (or property) over that amount.
It might sound boring—and it is—but you need to get your head around the taxes you have to pay first. If in doubt, seek out some expert financial advice.
4. Protect yourself and your finances
Shouting about your sudden windfall might be a bad move.
You may have the urge to post about your good fortune on social media.
However, revealing that you’re suddenly the richest person in your social circle could come with more problems than it’s worth.
First things first, you will have to deal with the social pressure of your windfall.
That means being the object of jealousy and rumours.
When the green-eyed monster rears its head, it can take many forms.
You may find that people start to distance themselves from you.
Of course, your news may have the opposite effect. You could find that acquaintances and people you barely know start to become uncomfortably close to you.
You don’t want to second-guess their intentions, but if you’re suddenly inundated with brunch invitations, you might understandably be feeling suspicious.
Might these randos be trying to get their hands on some cash?
Rather than telling everyone and their Great Aunt about your financial gains, keep things simple. Only let close family members and trusted friends in on the secret.
5. Create clear boundaries
While we’re on the topic of your loved ones, let’s deal with the elephant in the room.
How much, if anything, should you give them? The short answer is that it’s up to you.
However, you’re going to need to set some clear boundaries to avoid becoming their private bank.
One of the best ways of managing a sudden windfall is to decide how much you’re going to give away ahead of time.
Work this out with your financial advisor and be clear on what you can afford and, importantly, what you want to give away.
Tell people how much you are giving them and why you have made that decision. Hopefully, they’ll get the hint and won’t pester you for money whenever they fancy a shopping spree.
A sudden windfall has the potential to change your life, but receiving a large lump sum can come with some downsides too.
Sudden wealth syndrome can strike just about anyone who sees their income increase overnight.
By talking to a financial adviser, knowing who to trust, and being mindful of your spending, you can protect your financial future and avoid some of the stresses that can come with sudden wealth.