Is there such a thing as getting too rich too soon? At a time when the economy continues to make a shaky and uncertain recovery from a sustained recession, “sudden wealth” might seem like a pretty unlikely–and not entirely unwelcome– problem to have. The reality is, however, that financial windfalls are fairly common (typically as the result of an inheritance), and far too many families and individuals squander that wealth and waste a valuable opportunity to make a lasting positive impact on their long-term financial security. While the all-too-familiar cliché of fabulously wealthy high-profile celebrities who end up losing it all might be an extreme example, the average Joe doesn’t have a great track record in this regard either: T. Rowe Price did a study a few years ago that found that the average inheritance in the U.S. lasts just 72 days!
Here are some basic reminders to help you avoid missteps in the event that you are fortunate enough to come into some money:
Take your time. Like the recent winner of a $336 million Powerball jackpot who remained anonymous for weeks–understand that there is no rush to make decisions.
Carefully evaluate your finances, assess your debts, your tax liabilities, and the final dollar amount you are likely to be left with once your obligations have been met.
Don’t be a sucker! Take the advice of the professionals, and be wary of the family member with a great business idea or the friend who suddenly needs a big loan.
Plan your estate. Think about trusts and other financial instruments, look closely at things like power of attorney and determine where you want your money to go (charitable giving, inheritance details, etc.).
Only after you have done all of that can you relax. Have some fun! Take a trip, treat yourself, enjoy your good fortune. Just remember to do so within your means.