Suddenly Wealthy? Expert Advice on Where to Start

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What happens when someone suddenly comes into a lot of money? Well, that depends, but finding and consulting with a financial professional is a great place to start.

Becoming suddenly wealthy can happen in all sorts of different ways like, getting a first record deal, landing a big movie or an athlete signing with their first team. While it may be exciting, it can also be overwhelming to decide how to manage.

Where to start

There are several things to keep in mind as you begin to manage your new wealth. The first step may be to look for a financial advising team to help, and it’s important to find professionals who will keep your best interests in mind. It’s also important to know what your budget and goals are so you can work together to achieve the best outcome.

“I believe it all starts with the right team,” said Jeffrey Steinberg, strategic advisor and partner at Crowe Soberman’s Audit & Advisory practice. “The investment advisor or CPA must deal in the specific area to bring the specialized knowledge needed to provide 100% value.”

Who to hire

While a CPA might be the first step, an estate planner and an investment or financial advisor are also important, depending on the type and amount of wealth you’re handling. Once you’ve hired a professional (or professionals), it can be helpful to make a list of what you want to do first. Maybe that’s paying off debt or investing for retirement, but making a game plan with the help of your team is necessary so everyone can work together toward those goals.

Years of experience with athletes and artists, no less than five and preferably more like 10, as well as a certification in financial planning and the ability to say they are a fiduciary are things you want to look for, explained Louis Barajas, founder of Business Management LAB.

“An investment advisor or CPA needs to understand the mindset, goals and objectives of the 26-year-old artist who just received a $10 million advance,” Steinberg said. “The objectives and goals will be different than a dentist with a steady income who will continuously add to the investment. Not every advisor is for every client, fit is important, and for the young artist, the advisor needs to be cognizant of the client’s level of knowledge and adjust the message to fit the circumstance.”

Athletes and entertainers usually cross borders to perform or compete in different states or countries, and understanding residency and commodity tax needs to be involved, Steinberg explains.

“For young clients, we normally start out and establish a relationship with both the client and parents,” Steinberg said. “[It’s important to] stress there are no dumb questions, and in both industries, in many cases, sudden money brings new-found attention, not all of which is good.” 

Establish your goals

Knowing your net worth, taxes and cash flow is crucial to effectively budget. Understanding that taxes and associated fees, like paying your financial advisors and team, all come out of the shiny new lumpsum.

Depending on the situation, it’s also important to know that the income may stop at any time, so it can help you invest and save responsibly for later, even assuming the worst-case scenario doesn’t actually play out.

“A good CPA plans before rather than after the funds are received,” Steinberg said. “Depending on the country, the use of a corporation, certain type[s] will allow you to hold on to more rather than less as a result of potential tax savings. The literacy point is recognizing it. I believe financial literacy — as a result of so many bad stories — is getting better.”

Learning through failing in life is a normal thing. But when you learn through failing with money, the implications can be devastating. Financial literacy is not something typically taught to the general public, so many individuals find themselves reeling when they begin to look at and plan their finances.

Just because you hire professionals — you should — doesn’t mean they’ll make all the decisions. If they are experienced and highly rated, they will want to know what your goals are so they can make it happen.

“The focus is on what to do with the money before you spend it,” said Barajas. “[The client’s] prior financial experience and financial knowledge may be weak and needs more handholding and education. I want to know their money stories and experience with money.”

Other things to consider

When individuals come into a lot of money, family and friends may reach out for the first time in years, hoping for a handout. 

“A big mistake is going to family members, non-professionals, for advice,” said Barajas. “No one will ever care more about your finances than you.” 

“If it sounds too good to be true, it usually is,” Steinberg said. “Let the dust settle and make a plan before building the house, buying the Bentley or the bling. Let it sink in, and talk to your professionals.”

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