3 Sudden Wealth Myths & Realities

Established couple talking with financial advisor about their sudden wealth

Table of Contents

Stumbling into sudden wealth might feel like a dream. For some, it could arrive in the form of a long-anticipated inheritance. For others, it could come from a carefully plotted investment that finally pays out. And for a very small, select few, it could even come  as a result of a lucky lottery ticket purchase.

However it shows up in your life, the impact of sudden wealth can be profound, and can come with both wonderful opportunities and unique challenges. 

In this article, we break down three prevalent myths and their corresponding reality checks, to help you make the most of what you have been given.

The Myth of Financial Bliss

Stop sign on a street as a visual metaphor for why you should pause and question the sudden wealth myth of financial bliss
Sudden Wealth Myth #1 - The Myth of Financial Bliss

Myth 1: Sudden wealth solves all financial problems

Sudden wealth might seem like a silver bullet to your financial woes: a “guaranteed path to lifelong prosperity.”

With that mindset, it’s easy to imagine that your spontaneous windfall will make everything right: “I can finally book that vacation to the Caribbean! I can pay off my mortgage! I can do anything, anywhere, anyhow!”

But this kind of thinking may not be as fruitful as it first seems: all financial problems, big or small, have a habit of staying complicated, and even creating more issues, no matter what happens…

Reality check

The first myth is a myth precisely because it can paint an unrealistic picture of your financial well-being. While it’s true that coming into sudden wealth could help you to repay your short-term debts fairly straightforwardly, most of life — including financial life — remains complex.

That complexity — shaped by the unique features of your life — means that even with the gift of sudden wealth, it is likely that you will still need a strategic plan to move forward in the long term.

In other words, you will probably need to put some serious thought, a fair bit of hard work, and a little help from others towards your newfound wealth to truly capitalize on it, and to ensure sustainability over short-termism.

The key here is to change your thinking, your internal cognitive processes. Without a shift in your thought processes, you could easily end up overspending, and overspending consistently, to the extent that you end up worse off than before…

Case study

Consider the cautionary tale of the modern-day American hero: the pro sports star. A 2009 Sports Illustrated article found that:

“By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.”

By a similar token, their research indicated that figure was 60% for former NBA players after five years of retirement, and they cited examples of several prominent former MLB players, too.

But what could you possibly have in common with a first-round draft pick or Pro Bowl Hall of Famer (aside from your radiant smile and winning personality)? Well, if you’ve come into sudden wealth, the answer could be: quite a lot!

Typically, athletes who go broke exhibit similar traits: a lifestyle of high spending even after their short, 4-6 year high earning career window, and a lack of financial knowledge or planning. Many such athletes are also scammed by less-than-scrupulous financial advisers who take them for a ride.

Key takeaways

So how might you guard against this kind of disaster? Well, we would suggest that you adopt (or continue to apply) healthy financial practices like budgeting and diversified investing, and consider seeking financial advice from reputable, certified financial planners who will put your unique goals and values first.

When you think long-term, plan long-term, and act long-term, we believe you can put your sudden wealth to work such that it becomes the gift that keeps giving, rather than a Pandora’s Box you wish you’d never opened.

Happiness Beyond the Jackpot

Slot machines to represent the idea that sudden wealth is a magical happiness formula is a myth
Sudden Wealth Myth #2 - Hapiness Beyond the Jackpot

Myth 2: Sudden wealth guarantees happiness

Images abound of the ecstatic lottery winner with the implication: lots of money = lots of happiness. This is, of course, our second myth regarding sudden wealth: money and joy are not inherently intertwined!

Reality check

The red flag in this myth should be the word “guarantee.” As Benjamin Franklin, the face of the $100 bill pithily put it, “Nothing in this world can be said to be certain, except death and taxes.”

But why exactly is that the case with sudden wealth, or with any amount of money, for that matter? The answer rests on a few important nuances.

  • Money is meaningless until you do something with it. In other words, the numbers on your bank balance are a store of value, rather than the value themselves.
  • Research shows that how you apply your resources is more important for happiness than what you spend your money on.
  • Research also suggests that the “how” may actually be more to do with the “who,” as spending what you have on others is a good indicator of healthy relationships. This is is telling as healthy relationships are strongly correlated with life satisfaction.
  • This research finding comes full circle when you consider that of the main “components of happiness” (as defined by psychologists), a sense of engagement and meaning in life is the best indicator of overall well-being.
  • This last point should come as no surprise when you consider that both engagement and meaning feature heavily in — you guessed it — healthy relationships!

Practical takeaways

While money can purchase fleeting moments of pleasure, a sustained state of joy is best found in the way you spend your time (what you apply yourself to) and in the well-being of your relationships.

With that in mind, we would suggest that if you have come into sudden wealth, and happiness is what you are after, you could take some time to pause and plan out how best to use your newfound wealth in engaging and meaningful ways.

Everyone is different, so exactly what that means will be unique to you, but some ideas to spur on further brainstorming include:

  • Using your sudden wealth to invest in your children’s or grandchildren’s education (for example through a state-sponsored 529 fund);
  • Planning shared experiences with those you love; and
  • Investing in causes you care about (bearing in mind that charitable donations are tax-deductible).
 

And if those suggestions still aren’t enough for you, why not take a moment to pause and think about the times, seasons, or moments in life when you have been happiest? If you write those down, and you can spot any patterns, you could align those patterns with your sudden wealth plan.

Considering the reverse scenario

The flip side of this second myth is the reality that, for some people, sudden wealth might actually increase stress, rather than “guarantee happiness.”

Greg Liszka, IPF’s founder, has observed that for people in that predicament, it’s the uncertainty that comes with a change in circumstances that feels scary:

At Iron Point, we haven’t had any lottery winners, but we do have people who have inherited wealth and gifts. Often, that introduces stress into their life, because they don’t know what to do.

“Do I pay off debt? Do I pay off my house? Do I put it towards my children’s college? Towards my own retirement? What do I do? What’s the best course, financially?”

That generates an entire conversation. And it really depends on the individual: are you carrying credit card debt? If so, then we’re getting rid of that first.

But if not: “Should I pay off my mortgage at 3%…? Or should I put it away for my retirement…?” Questions like that start bigger conversations…”

Again, the key to dealing with this kind of stress is (1) sitting down to talk about it, and (2) planning a wise course of action with people who can help.

Crossing your fingers and hoping that you will magically fall onto the best path “just because” probably isn’t going to work out…

The Permanence Paradox

Apples rotting on the side of a field to represent the idea that sudden wealth will not automatically last forever
Sudden Wealth Myth #3 - The Permanence Paradox

Myth 3: Sudden wealth lasts forever

Speaking of “crossing your fingers and hoping for the best,” here’s our third myth: the belief that your sudden wealth will somehow last forever.

The myth of financial indestructibility insists that once you’ve struck it rich, that wealth is yours to keep, immutable and eternal, no strings attached. The reality could not be further from this.

Reality check

All wealth is subject to inflation, which means that, without the right plan in place, you are almost certain to lose money, in real terms, over time. Sudden wealth is no exception.

Typically, sudden wealth comes in a single sum, or over a short time period. So if you want to make your windfall last longer, then you’re going to need to come up with the right financial plan to protect and grow your wealth.

Financial planning for generational wealth, for instance, requires more detailed consideration than what you would need to accomplish more immediate financial goals. That kind of financial planning often hinges on long-term investment strategies rather than short-term trends.

Truly Generational wealth

If making your wealth last longer is a priority for you, you might want to think about Legacy Planning, even if that feels like it should be a long way off yet.

Legacy Planning is a holistic process for determining how your assets and wealth will be distributed after you pass away.

Now, you might be wondering, “What does legacy planning have to do with sudden wealth? Surely it’s too early to be thinking about that kind of thing?”

If that’s true of you, then let’s go back to our first reality check: if you want long-term success, you need long-term thinking, and what could be more long-term than planning how you want to bless your children and grandchildren? (Especially if you don’t have any yet!)

If you start with the end in mind, and work backwards, you can better plan how you will steward your sudden wealth now, so that you achieve your legacy planning goals later.

Seeking Professional Guidance

Now, with all this talk of myth-busting, you might either feel confident and able to continue on your own, or overwhelmed and unsure of what to do next. If the latter is true for you, and you’d like some help, don’t worry! It’s a common feeling.

As we mentioned earlier, many of the clients who have come to us with sudden wealth question marks need a bit of help deciding what to do next. They know they have several different options in front of them, but they’re not sure which should come first.

Seeking professional guidance, especially from financial planners who are also fiduciaries (like those at Iron Point), can help you answer that kind of question, as they can talk you through which option makes the most sense from a strategic perspective (for instance, minimizing your debts and taxes, and maximising your investment growth opportunities).

The Iron Point Difference

At Iron Point, we recognize that your goals and circumstances are as unique as you are, which is why we offer an individualized approach to all our clients.

In our founder, Greg Liszka’s words,

We try to do it a little different. Your typical advisor — a lot of the people out there — doesn’t want to think outside the box. They’ll just tell you: “Buy this mutual fund.” Everybody gets the same thing.

Now, you may have it a little different from your parents, but there’s only twenty funds to choose from in that family — and how different can they really be? And that’s what we fight against with every part of our being.

Is that the right solution for some people at some times? Yes. Will we employ that solution if so? Yes. But there are so many avenues out there that just take a lot more research and time to understand, once you can grasp them.

At Iron Point, we’re really going to customize something to you, and then we’re going to monitor it. Depending on the strategy we’re employing, it could be weekly, could be monthly. But we’re going to monitor it and make changes as conditions dictate. So you’re hiring us to actively do a job, not sell you something. I don’t want to sell you something. I want to fix a problem.”

So if you have come into sudden wealth recently, and you need some help, you can rest easy knowing that we’re going to tailor our service to your circumstances, and your circumstances only:

“If everybody gets the same thing…

Say, you’re 24 years old and you want to start savings. And you go to a standardized planner, who says: “Alright, so this is what you get…”

Or if you’re a 65-year-old and you’re retired, they say, “Oh, we’ve got this fund…”

But at that firm, you still only have 24 to choose from. And all of those stock funds are very similar, with a scattering of fixed-income stuff. That’s the difference. That’s what we’re trying not to be.

I’d rather be about planning with you, creating a roadmap, and working down that, with something to fall back on — with your clear goals to accomplish — not just coming to our clients and saying, “Hey, how much money do you have? Great! Well I really think “Growth Fund America” would be perfect for you…”

If you happen to live in one of the Greater Pittsburgh, Grove City, Greenville, Erie, Cranberry Township and Boardman, OH areas, and you are interested in this kind of customized wealth management service, why not reach out to Iron Point Financial for a free consultation today?

Sudden Wealth Summary

If you find yourself on the precipice of a sudden monetary infusion, and you’ve made it this far through our blog today, we hope you remember one thing: the best decisions are informed ones.

Sudden wealth will not (1) solve all your financial problems, (2) make you instantaneously happy, or (3) automatically last forever, but with the right perspective, planning and guidance (especially trustworthy legal, tax and financial advice), you could be well-placed to steward what you have been given for generations to come.

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Iron Point Financial is here to empower you to secure a brighter tomorrow. We operate physical offices in Grove City, PA and Greenville, PA. 

We primarily serve residents of Pennsylvania, Ohio, West Virginia and Florida but we also have security registrations for 22 other states across the continental USA.

Further Reading

 

Disclosures

  • The individuals and situations depicted here are hypothetical only, and do not represent the actual performance of any particular investments or strategy. 
  • All investing involves risk, including the possible loss of principal. 
  • There is no assurance that any investment strategy will be successful.
  • For a comprehensive review of your personal situation, always consult with a tax or legal advisor. 
  • Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
  • The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.
  • Due to volatility within the markets mentioned, opinions are subject to change without notice.
  • Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. 
  • Past performance does not guarantee future results.
  • The opinions are those of the writer, and not the recommendations or responsibility of Cetera Advisor Networks LLC or its representatives.

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