The Planner's Perspective: Becoming an Overnight Millionaire (or Billionaire)
By Paul Morrone CFP®, CPA/PFS, MSA
A financial windfall doesn’t always come in the form of a $1 billion lotto jackpot. As nice as this would be, it just isn’t reality for the majority of us (except for the lucky individual in South Carolina that just won the $1.6 billion Mega Millions last week). The rest of us mere mortals tend to accumulate wealth the old-fashioned way, through hard work, savings and investment. That’s not to say that you may not have a windfall coming your way now or in the future, it will likely just be significantly less than $1.6 billion and may come in the form of an inheritance, business sale, legal settlement or gift. Regardless of the amount, running to the bank to cash the check and buy a waterfront home probably isn’t the best approach for you or your family.
Think about the impact this newfound wealth is going to have on you. Is this life-changing money or will it merely be a welcomed luxury? Depending upon the amount, type of assets, and your current financial situation, even a large amount of money may be simply make life a bit easier as opposed to a quit-your-job-and-retire-on-the-beach money. If you’re taking ownership of real assets (business, real estate, etc.) the impact to you and financial considerations are infinitely more complex. Making a rash decision can cause irreparable damage that can result from impulsive actions or unsustainable spending habits.
While it’s always prudent to have a plan in place, it is even more important to update your plan regularly to adapt to the many curveballs (good and bad) that life throws at you. An unexpected and sudden windfall can impact everything in your financial life including your tax bracket, eligibility for certain state and government benefits, liability exposure, amount and types of insurances you should be carrying, existing estate plan and retirement plan, to name a few. Overlooking one or many of the myriad of variables that come with sudden wealth is a common mistake that can have serous repercussions.
Adapting your plan as these life events occur may help you understand what a sudden receipt of wealth really means to you and your family. A holistic and comprehensive analysis can uncover knowns and unknows about your new financial situation and may require you to think about things that were previously never an issue. By doing so you will have a better understanding of what steps are necessary to mitigate unnecessary risks and how to maximize the long-term value of your newfound wealth. Furthermore, avoiding common missteps can prevent you taking irreversible action and potentially save thousands in the form of taxes, accounting or legal fees, not to mention headaches!