It may be incomprehensible for someone who was making $50,000 a year to go broke after receiving a $10 million windfall, but it happens. It might not disappear in a year or two but if the person is consistently making bad financial decisions, they can go through the money in less than a decade and much quicker if they also engage in one of the other sudden wealth sins below.
How can you avoid this fate? Go slow, work with experts, figure out how much you can spend and then stay on track. If you still have problems, work with a therapist or money psychologist. The few hundred you spend learning about your triggers and underlying issues will be one of the best investments you could make
Sudden-wealth recipients who spend too much on themselves will often give too much, as well. When confronted with giving too much to family, one client confessed, "I feel guilty having this new house and stuff when the rest of my family is still struggling. I can't enjoy what I have unless I give them what I have." There are often familial pressures and hidden expectations to take care of the family that can weigh on the person. Helping those in need and others to create a better life for themselves can be one of the most rewarding uses of your windfall, but there is a limit to what you can do.
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Stick to an organized spending plan, help others the right way and stay on track with monthly reports. Work with a financial advisor to create a long-term and sustainable plan to assist your family. Also, have that advisor become involved in the discussions with your family, if necessary.
Divorce can wipe out 50 percent or more of your wealth overnight. Divorce is also one of the most common reasons why sudden-wealth recipients lose their money. Protect yourself with co-habitation, prenuptial and postnuptial agreements. Work with a family law attorney to ensure you have some protection against separation or divorce.
A common and large source of loss for sudden-wealth recipients is making bad investment decisions. Many smart people have made bad decisions and have invested too much of their sudden wealth in red investments. Avoid these and stick to mostly green and occasionally some yellow investments. Work closely with your advisors to review each investment — especially those that are yellow or red.