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4 steps to protect a windfall

Man in suit excited about money falling © KieferPix/

© KieferPix/

It may seem like a problem you'd love to have: deciding what to do with a big win in the lottery, an unexpected inheritance or other windfall.

But, as the sad tales of some lottery winners clearly demonstrate, sudden wealth can quickly spiral into a living nightmare -- with the loss of not only wealth, but also family, friends and even your health.

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If you're lucky enough to receive a big, fat fortune, understanding the psychology of sudden wealth can help you take the right steps to protect your money and lifestyle.

"People think windfalls are about money. But it's really all about change and transition ... and people need time to adjust," says Susan Bradley, a Certified Financial Planner professional who is the founder of the Sudden Money Institute in Palm Beach Gardens, Florida, and author of "Sudden Money: Managing a Financial Windfall."

Money shock isn't necessarily limited to those who immediately find themselves with a huge pile of cash.

In fact, unexpectedly getting as little as 3 months' worth of salary in a lump sum can set off a chain reaction of panic, guilt and fear for some, according to psychologist Dennis Pearne, co-author of "The Challenges of Wealth" and a wealth counselor and consultant based in Framingham, Massachusetts.

Handling a windfall

  1. Set a money moratorium.
  2. Take emotional inventory.
  3. Set aside play money.
  4. Review after 1 year.

"A person making $60,000 a year ... who suddenly has $15,000 plopped in their lap" can go into money shock, Pearne says.

Following are 4 steps that can help you adjust to a new financial reality after a windfall.

Step 1: Money moratorium

The shock of a sudden windfall can set off a litany of irrational behaviors, such as giving all the money away, becoming a recluse, spending the money lavishly, or hiding or hoarding the money. Other hallmarks of money shock include engaging in self-destructive and expensive activities such as substance abuse, gambling and sex addiction, says Pearne.

Windfalls at risk © HieroGraphic/

Bradley says such problems stem from the fact that most people don't understand the limits of their new wealth.

"(The money) can seem infinite ... people often get an 'I'm invincible, anything is possible' feeling," she says.

These powerful emotions may create trouble for the newly affluent.

To counteract these emotions, it's important to allow time to adjust to the new wealth circumstances that follow a windfall. Pearne and Bradley recommend that people who receive a windfall do nothing with their money for at least a few months, if not an entire year.

That means saying "no" to gifts for family or friends, new investments, lavish cars or house purchases, and trips around the world. It's not even wise to retire.

"Park your money someplace safe where it won't depreciate and take a money holiday," Pearne says. He recommends CDs as one possible home for the new cash.

Bradley says the money moratorium acts as a timeout that allows you to come to grips with your new financial situation, get your emotions under control and assemble a team of advisers you trust, including a fee-based financial planner and an estate attorney.

Step 2: Emotional inventory

Sudden wealth can lead to what psychologist Pearne calls "identity dissolution." All the parameters set up in life that define identity are suddenly gone.

After an especially large windfall, traditional work may become an option rather than a necessity; all the years of school training to get to a skill level are no longer necessary for survival.


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