How Sudden Wealth Syndrome May Be Causing You To Make Poor Financial Choices

Congratulations! You might have just won the lottery, inherited a fortune, or received a large settlement in a lawsuit. Whatever the case, you have just become rich in a short amount of time. So why are you struggling so much? Suddenly coming into wealth should have solved all of your problems!

Whatever your profile, such a quick shift in social status and financial opportunity can create a tense situation for anybody, and ­­even more so for couples who come into money together. What you’re experiencing is called Sudden Wealth Syndrome. 

Do you have any of these symptoms? Excessive temptations, feelings of guilt, isolation from peers, or an inexplicable fear of losing everything? If you said yes to even one of these symptoms, be careful! These manifestations may spell trouble for your financial future.

Let’s take a look at some of the problems that arise with sudden wealth and look at possible solutions for handling them quickly and efficiently.

Excessive Temptations

You used to live hand to mouth. However, this new sense of financial freedom has awakened temptations in you that you didn’t even know you had. You never used to spend a penny unless it was necessary. Now, there is a desire to splurge. Before you know it, large sums of money have quickly vanished and you’re left wondering how.

Solution: First off, don’t be discouraged. After all, you have the right to enjoy your success to some extent! But, learn to recognize where good splurging ends and harmful indulgence begins. Unfortunately, when most people are left to their own devices, this is a problem likely to have an unhappy end. To come up with smart ways to stay financially in control, consult a third party expert who can help you find the balance that fits your lifestyle and net worth.

Feelings of Guilt

Is it hard to look around and see others in need? It’s common for the suddenly wealthy to be overwhelmed by feelings of guilt, especially when they see their friends and family still struggling to get by. Naturally, one’s instinct is to spread the wealth as a means of absolving these negative emotions. Now, there’s no reasonable way to dismiss generosity as a virtue. However, there are better ways to give and contribute to the lives of the less well­ off, and there are ways that are more self­ destructive and should be avoided.

Solution: Your friends and family don’t have to suffer, but before you give away a single dollar, consider outlining a “sharing plan.” This is a structured approach to maximizing your sharing potential and assure that you will be able to remain generous to causes that matter to you for many years to come. It includes gathering expert advice regarding matters of tax benefits, budgeting, and even managing personal relationships better.

Isolation from Peers

Two bad trends seem to take shape among the recently endowed: 1) the temptation to flaunt new toys and other signs of having made it in front of old peers (those less well­ off), and 2) the pressure to show off wealth as a means of fitting in with new social groups (those equally or more well­ off). Needless to say, both tendencies are most likely to have inverse consequences and lead to social isolation.

Solution: Despite the increasing wealth gap in today’s society, there is actually evidence that cultural divisions of social classes (excluding the ultra rich) are disappearing. Neighborhood segregation may always exist, but not all your peers from either side of the spectrum are going to want to include themselves in all aspects of your social life. Still, the best way to keep your social life in tact following an influx of funds is to proceed as normal with carefully agreed upon upgrades. These upgrades should equate to real improvements in the quality of life and not just serve to impress.

Fear of Losing Everything

Your whole life, you never imagined that someday you’d have what you always dreamed of: extra money. Now that you finally have it, you can’t bear the thought of squandering it with bad decisions. First, congratulations on being conscientious of wealth management. However, money that doesn’t move doesn’t grow, and money that doesn’t get spent is mere paper in your pocket.

Solution: Don’t be afraid to let go a little. There are many safe ways to invest! When the principles of portfolio diversification are followed, there’s an extremely small chance that you’ll lose it all. Whatever your intentions are for your wealth, whether it be to enjoy it, share it, grow it, or put it to work, one thing’s for sure: fear is only going to hold you back from economic opportunity. 

If you don’t think you can trust yourself to make these decisions, consider a Levanto household CFO to help you find a happy balance.

These points only touch upon some of the pitfalls of Sudden Wealth Syndrome. Use them as a basic guideline for when you make the move to bring in a financial professional to help you in your affairs. In any case, keep in mind the simple truth that moderation, planning, and expert advice are your main keys in building a sustainable financial future.