Don't let 'found' money slip through your fingers
How to Waste Sudden Wealth
by Gary Foreman
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Finding an Inheritance
You've always dreamed of winning the lotto. Rich Uncle Larry just left you the next best thing, a large inheritance. But, now that you've had time to think about it, you realize that you've never been very good with money.
So how can you manage to protect the money you'll inherit? You avoid these 13 ways to waste sudden wealth.
Don't prepare before you get the money. Get your hands on that big check as soon as possible. If you do, you'll end up not knowing what to do with it.
A better idea is to line up your professional advisors and plan your strategy before you take possession of the money. Know how much is going to each bank and investment account. Have a plan as to when and how the money will be invested.
Brag about your new found wealth. It's always tempting to share good news with friends. Don't do it this time. Your sudden wealth can easily drive a wedge into your friendships. Friends who have known you for years will begin to look at you differently if they know you have wealth.
Don't manage your taxes. Tax law is written so that wealthy people pay most of the taxes and also have the largest number of deductions available to them. That means that you need to keep taxes in mind on most financial decisions.
Don't invest the inheritance. You can't just park a large inheritance in your local bank and forget about it. The best way to protect your money is to invest in a variety of different things.
Try to do it all yourself. Unless you're trained in money management, you'll need professional counsel. Tax laws are complicated. Find a good CPA to navigate them. Investments can be very good or very bad. An experienced investment professional can help you separate the two.
Feel free to spend the principal. When you live paycheck to paycheck, a big inheritance seems like so much money that you could never spend it all. That's a lie. You can spend it all. It's much easier than you think. The best way to protect it is to only spend the income it generates and never spend the principal.
Buy one or two special toys. You'll want to buy something fancy like a big boat or a fast car. Avoid the temptation. Big ticket items can consume your inheritance quickly.
Get in the habit of satisfying your urge to spend. Having spending money available can be dangerous. The desire to impress people or to want to make them happy is universal. Now you have the money to attempt it, but it can quickly become an expensive habit.
Indulge relatives and friends who want your help. If people know you have money, they'll come to you when they're in financial stress. Unless your inheritance is really large, you won't have enough for all of them. If you can help (and want to), limit yourself to your regular income. Do not give them any of the principal.
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Partner in the wrong businesses. Friends and relatives will pitch many great investment and business ideas to you. Unless you're trained, you won't know how good or bad they are. Let your investment advisor evaluate them. If he says "no" (and in most cases he will), you'll be able to tell your friend that it's his fault they can't have the money.
Make quick financial decisions. Very few money decisions need to be made right now, especially when it comes to buying something. Take your time. You'll avoid a lot of mistakes.
Become an instant philanthropist. You'll want to give to charity, but make sure that the ones you choose actually do the work they promise. Have your CPA check out any that you're considering for more than a few dollars. Reputable charities limit how much they spend on salaries and fund raising.
Lose sight of who you are. Sudden wealth has a tendency to change people. It's easy to let found money define you. That's a quick way to consume an inheritance and lose sudden wealth.
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter. Gary is also available for audio, video or print interviews. For more info see his media page.
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