For most people, getting rich is a long process. It takes the average millionaire more than two decades to get to the million dollar mark.
But, sometimes, you can get a windfall. You go from having very little, to having a lot, almost overnight.
How does this happen? There are many routes:
- You win the lottery
- Your business becomes an overnight success
- You make a successful investment that radically changes your wealth position
- You become highly successful in a particular field, such as sports, arts or music
- You inherit a large quantity of money
- You earn a sudden promotion that increases your income by an order of magnitude
While each of these events is rare individually, collectively they happen quite frequently. There are a surprising number of new millionaires every year, and a large chunk of people who come into substantial sums of money in the six figures.
If you were to suddenly receive a windfall like this, though, would you know what to do? Probably not. Therefore, in this post, we take a look at what you should do if you suddenly become filthy rich. Read on to learn more.
Get Legal Professionals To Help You
The first action you must take is to protect yourself from a tax perspective. If the authorities learn that you’ve come into a large amount of money, they are more likely to query your accounts.
Tax and legal professionals can provide you with advice from the get-go. In some situations, such as capital gains, you may only have a couple of weeks to declare and pay any taxes that you owe. If you don’t, you might wind up facing large finds.
It’s critical to find financial advisors who have expertise in sudden wealth specifically. Remember, most advisors help people with regular finances, not those with seven-figure net worths.
Keep It Quiet
When some people come into a lot of money, they immediately want to tell the world about it. But that’s a bad idea. It will only attract attention.
Remember, when you become rich, nothing in your external world changes straight away. If your brokerage account is now seven-figures instead of five, nobody can tell from the outside. It is only when you talk about it or start spending money in conspicuous ways that it becomes evident.
Don’t ask family and friends to become involved in your financial dealings. Don’t reveal to anyone what you have. Instead, only work with reputable professionals with experience in the field. Trust them to provide the advice that you need to protect your wealth and get it generating a substantial cash flow.
Remember, if you do reveal what you have, friends and family may treat you differently. You may also be the victim of kidnap and ransom attacks if you are not careful.
Be Sensible About Your New Life
A million dollars might sound like a lot of money, but it is actually easy to spend. You can blow all of it in just a few days on houses, cars and other luxury items that you’ve always wanted.
It’s a good idea, therefore, to think beyond the money about what it is that you actually want. If having more time is the key to your happiness, then you might want to invest your new gains so that they generate more cash for you to live on in the future.
Create A Budget That Suits Your Needs
Once you become wealthy, budgeting becomes important, perhaps even more so than people with regular finances. You have to consider what you really want to do with the money you have.
Remember, if you invest $1 million and you make an average of $80,000 per year, then to preserve your capital, you’ll have a budget of $40,000, assuming that you don’t have any additional money coming in. Remember, not all years will return the full $80,000, so budgeting less than this is important. If you have a good run and increase your capital, you may be able to increase your annual budget in the future.
You’ll also want to make contingency plans. Investments can fall in value dramatically in bear markets, and you could lose 25 to 50 percent of the money you put in.
Honor Your Obligations
Even though you’ve become wealthy, you still need to honor your financial obligations to other people. Wealthy individuals must pay their bills on time, like everyone else.
If you suddenly get rich, start by paying off all your non-mortgage debts. This way, you can avoid high interest repayments in the future.
Then focus on building your reputation. Remember, it’s possible to be wealthy and have a poor credit score at the same time. Credit rating bureaus don’t look at the amount of money in your brokerage account. Instead, they concentrate on whether you actually pay your bills on time or not. If you don’t, they’ll downgrade you and you’ll find it more difficult to carry out credit-based transactions.
Avoid Complex Strategies
Complex strategies are sometimes appealing. Wealthy people love holding their money offshore in tax havens. However, such strategies can easily land you in trouble with the law. If the authorities discover that you’re holding your money overseas, they are more likely to audit you to find out where you are hoarding it and will try to get you to pay more.
In some extreme cases, you may even find yourself in jail, particularly if you evade paying large sums. Trust and other vehicles are complicated and costly to administer. While there might be some front-end savings, back-loaded costs can be substantial.
Understand Your Limitations
Lastly, you’ll need to be frank with yourself about your limitations. Unless you’re a professional tax accountant or financial analyst, you won’t know how to file complex accounts or invest money safely. You’re liable to make mistakes, and those could be costly.
Knowing your limitations, therefore, is critical. If you need to pass a task onto another person, do so. There’s no need to try to do it all yourself.