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.

Social circles — the people you hang out with in your socioeconomic sphere — may change. People also may come out of the woodwork looking for a handout, children may demand more money, and family members or friends may feel resentful or become predatory, he says.

“Everything a person has spent decades building changes in one fell swoop,” Pearne says.

When a windfall is the result of the death of a family member, it is doubly confusing, says Bradley, the CFP. Grieving heirs may feel guilty at being secretly thrilled about the money.

US Poll: What if you got a $10,000 windfall? © HieroGraphic/

Psychological problems can arise if friends and family are unsympathetic to the stresses of new wealth and cannot help them with this unusual dilemma. Unlike other types of major transitions — such as divorce, a move or death of a loved one — the transition into money is not something that is seen as a “problem” by society, Bradley says.

Pearne suggests therapy — ideally with a professional who has experience in the psychology of sudden wealth — to help resolve some of these issues.

Step 3: Set aside play money

Alan Moore, co-founder of XY Planning Network in Bozeman, Montana, advises people who receive inheritances or large bonuses from work to set the money aside into a bank account that isn’t used for day-to-day transactions.

“This way, you aren’t seeing the money every time you log in to check your bank balance,” he says. “Seeing a large sum of money every day makes you much more likely to spend it.”

Lottery windfall not foolproof © HieroGraphic/

But that doesn’t mean you have to avoid touching it altogether. Give yourself permission to celebrate.

One rule of thumb is to earmark 10% of your cash as fun money. But, Moore says, it depends on your situation, and the size of the windfall.

“I do think that windfall recipients should spend some of the money on themselves,” he says. He recommends taking a vacation.

“Anything that is going to lead to memorable experiences is likely going to be better than buying more stuff,” he adds.

Step 4: Review after 1 year

Bradley documents 3 stages after a windfall in her “Sudden Money” book. She says the first phase encompasses a steep learning curve that can last for as long as 5 years, much like a grieving process.

“It is longer if the money was the result of the death of a loved one,” Bradley says.

Although the adjustment process can take 5 years, it’s wise to review your situation and make some decisions at the 1-year anniversary of your financial upturn.

Once you begin to become comfortable in your new financial reality, you may be ready for the successive phases, which include reviewing your situation and deciding how the money will be used, Bradley says.

This is the fun part, when you’ll choose — with the help of your trusted advisers and a solid financial plan — whether to retire, buy a vacation home, donate to charities or set up trust funds for your children.

The ultimate goal is to create a sensible plan for handling your windfall that also allows you to come out with your relationships and sanity intact.

“The whole point of process is to build a better sense of well-being,” Bradley says. “Holding on to the money is only part of the equation.”