Everyone wants to be a millionaire…until they are. Sudden wealth can cause just as much stress as living in poverty, and sometimes those who find them selves going from "rags to riches" end up back in rags…within a short period of time.
Why is this? Theories abound, but one that makes sense says that we are not wired to handle large sums of money we did not earn. And then, when we have it, we find ourselves unconsciously sending it away from us, and we gradually work our way back to the comfort zone.
A study done in 2012 by Ohio University found that adults who receive an inheritance save only half and donate, spend or lose the rest. Large sums of money can create a feeling that it will last forever and never run out. You can begin to feel generous. The car gets replaced, the home traded in or expensively remodeled. And while none of these things is inherently wrong, without some planning or advice, you may find yourself with less money in a short period of time than if you had planned on the new car or home and its related expenses.
Our advice is that in the event of "sudden wealth", put it in the bank and don't touch it for a while. Like a new baby, learn to live with it. Get some advice, assemble a team. If you know ahead of time that it is coming, start doing your homework. If the money is coming to you as an IRA or in an annuity, get professional advice on how to handle potential taxes. If possible, share your good news with only a few trusted friends or family members. This not only limits the amount of unsolicited advice, but it also reduces the potential number of requests, unnecessary pressure to "donate" or "help out," or, worse, "loan" to people in need.
Bottom line: Go slow, get help and sleep on all of your decisions. You will be glad you did.