Coming In To Sudden Money: How Fun Would That Be?
Wouldn’t it be great to start off a new season with a boat load
of cash? I mean the amount of cash you could use to pay all debts,
put your kids through any college (and grad school), buy the
home of your dreams and a vacation home, and still have enough
money left over to give generously and then live off the interest. Probably the best get-rich-quick scheme that has made people
into instant millionaires is the lottery, in most U.S. states.
Have you wondered what you would do with all that money if
you won the lottery? Well, most likely you would pay off all
your debts, put some away for the kids to go to college, buy
a larger house, buy a second house, buy a few really nice cars,
and then live peacefully off the interest. Yes, that would be
great, especially the peaceful part. That’s how those lottery
winners live their lives, right? Not according to Susan Bradley, who wrote Sudden Money:
Managing a Windfall. Bradley found that lottery winners
and others who come into new cash will either keep the money
and lose family and friends, lose the money and keep family
and friends, or lose both. Very few lottery winners keep the
money and keep family and friends. As I researched lottery winners and their lives post-winning,
I found this is true many times. Regardless of whether people
kept the money or lost most of it, I was interested in why
many do not keep family and friends. For most, it was because
people wanted the lottery winner to invest in their business
ideas, and the new millionaires refused (and the family or
friend dropped them), or the new millionaires invested, and
it was a bust (and the millionaire dropped the family or friend).
For some, it was because people wanted the winner to support
them or give them free stuff. Janite Lee won $18 million in 1993 in Missouri. She generously
gave money to charities, schools, politicians, and education.
Eight years after winning, she filed for bankruptcy. She had
$700 left. Billie Bob Harrell won $31 million in 1997 in Texas. He was to
receive $1.24 million annually for 25 years. It was great at
first. He bought a ranch. He bought homes and cars for himself
and family members. He gave generously to his church and to
people in need. A lot of people came to him requesting money.
But the giving, lending, and spending got out of control.
His wife left him a year later, and in 1999 he killed himself. Sometimes just being a relative of a lottery winner is bad
news. In 2004 in Illinois, a teenage girl whose grandfather
won the lottery a couple years earlier overdosed on drugs,
which she was able to buy because her grandfather supplied
the money. Other teens who knew she had a lot of money pressured
her to buy the drugs and use them. Just like when psychologists say that love and hate run closely
together, so do sudden wealth and sudden loss. People who come
into money quickly, such as lottery winners and people who receive
large inheritances, usually make decisions too soon. They put
their house on the market and buy a new one right away.
They buy several cars, quit their jobs, and invest in ideas
that sound great. So what can a person do to protect themselves when they suddenly
find themselves with a lot of money? The first is to proclaim a moratorium on decision-making. They
should put the money into safe investments for the time being
and then take some time (say, 3 to 6 months) before taking any
action on money decisions. The 3- to 6-month timeframe is a
planning stage. The next thing they need to do is to get organized and focused.
They need to list the major life decisions they’ll need to make
in the next 5 years. Then they should list their assets and debts,
and review their current insurance coverage. During the 3- to 6-month planning stage, they should write out
how they’re going to live during this stage. What will their
expenses be? Where will they get their income during this time
(and how much)? How long will this planning stage last? Beyond the planning stage, they need to review their income
for the following 12 months and beyond. They should plan out
their taxes and what is leftover. They need to plan out what
they want their life to look like in the next 5 years. (For
example, where will you live? What will you do every day? What
will you be involved in? How extravagant will your life become?)
They need to ask themselves what future expenses are coming,
such as college education, retirement, and really great trips.
Plus, they need to plan for how much philanthropy they want
to be involved in, for at least the next 5 years. During the planning stage, a new millionaire will also want
to find a financial advisor, accountant, and estate attorney
(and perhaps a wealth psychologist). They can ask for referrals
and then interview each professional to get a good idea of
compatibility. I know people who play the lottery regularly. I told them if they
win to come talk to me and I’ll give them some decision-making
advice (without asking for handouts). In addition, I've read that people who come into sudden money notice
their phone ringing a lot more often, as people they don't even know
find out about their new money, find their phone number, and start
calling asking for investment money and handouts. (This is in addition
to the family members and friends who start calling a lot more often.)
This would be a good time to either drop the home phone number completely
(even if that number has been the home number for years) or get a new
home number. Likewise, getting new cell phone numbers would probably
be a good idea. (Then only tell select people the new numbers.) What about those friends and family you might lose if you come
into sudden money? You know what? You can’t control other peoples’
responses when you choose not to invest in their business ideas
or give them loans or handouts. You have to make the best decisions
you can with your new money and let the other chips fall where
they may. I’ve realized that when I’ve gone through difficult times, I’ve
found out who my real friends are. The same principle applies
to sudden money. If you get it, you will know who your real
friends are within one year. If you ever find yourself the recipient of an influx of cash,
keep your head on straight. Don’t go to extremes. Give yourself
quarterly reality checks. Expect that you are going to lose some friends
and family members. And get advice from several qualified professional
people regularly. © 2005 Borgeson Consulting, Inc.
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