Let me set the stage for you:
I had no experience.
I had no bank accounts I owned.
I had barely enough money to buy Chipotle.
And...
Overnight I become a millionaire.
This was my experience as an 18-year-old after signing my first professional contract.
I remember celebrating with my family at a local ice cream shop and going to bed thinking, "Is this real?"
Then I woke up the next morning and life (just like the day before) went on.
So while on one end much of life felt the same, on the opposite end I felt an incredible sense of responsibility (and anxiety) not to mess this up.
That is my experience with sudden wealth and since then I have helped dozens of athletes and entrepreneurs navigate this situation.
It is the backbone of financial planning for athletes and entrepreneurs at Moment.
In this blog, I am going to talk about how money affects us, things to consider with sudden wealth, and action items athletes and entrepreneurs can take to create positive outcomes.
Sudden Wealth - The Problem
Society as a whole is obsessed with money.
On one hand, it makes sense that much of our world revolves around us trading money for things we need.
On the other hand, it makes no sense how we will let relationships wash away, time evaporate, and spend every waking hour chasing the next dollar (even if we don't need it).
Consider this ~ John D. Rockefeller whose net worth was once more than 1% of the United States GDP was asked how much money is enough. In which he responded, "Just a little more."
Rockefeller died in 1937 but society hasn't changed much since then when it comes to money.
Ask someone who makes $50,000 how much they need to earn to be comfortable and they will tell you $100,000.
Ask someone who makes $100,000 how much they need to earn to be comfortable and they will tell you $150,000.
It is ingrained in our society to think, just a little more.
I share this as background to understand why sudden wealth can cause more harm than good.
For many of the athletes and entrepreneurs we serve it is like walking into a gunfight with nothing more than a knife.
Without education, the proper tools, and an action plan you stand little chance to see a successful outcome.
Don't believe me just google "athletes going broke".
Sudden Wealth - Education
Sudden wealth is just that ~ sudden. For those navigating it, the money is coming in before they have even had a chance to process it.
Let's compare two paths and the outcomes that follow:
Path 1 - You have a typical earning arc reaching peak earning years between 50-60 years old. Over time you have made countless mistakes but their effect on your long-term financial security is minimal.
The big mistakes happened with little money.
Path 2 - You find yourself facing a big payout that could make up 90% or more of your lifetime earnings. The opportunity to learn along the way is void.
The big mistake could happen with all your money.
Every horror story you hear of someone losing it all started with someone thinking, "That will never be".
The education on sudden wealth starts with understanding why it happens in the first place ~ No one thinks it will happen to them.
I talk a lot about the power of compounding and as powerful a force as that can be in someone's favor it can be equally powerfully going against you.
Compound spending and an unstable lifestyle can quickly rage out of control.
Here are three tools I recommend for anyone navigating sudden wealth.
Sudden Wealth - The Tools
While there is seemingly an endless list of tools you could utilize to navigate sudden wealth, I want to give you three that anyone can use.
The Everything List
Before you spend a dollar one of the most powerful tools you can use is what I call "The Everything List". It only requires a pen and a piece of paper.
Take your paper and write down everything that you think you want in the future.
The more detailed and specific you can be the better.
Example:
Cadillac Escalade
Summer Beach Vacations
$1,000,000 House With a Pool
The key here is to map out everything you think you want before ever spending any money.
Once you do that take a step back and envision what that life with all those fancy things will look like.
Is that what you want? If so, great...If not, look to refine.
Then I want you to work with trusted resources (preferably a financial team) to map out how much that lifestyle will cost to buy and then afford.
Remember, buying is a one-time cost and affording is an ongoing expense.
Now let's take that list and add some checks and balances.
The Budget (and accountability)
That list you just built needs some numbers behind it. Let's assume you have enough wealth to both buy and afford the things on it.
Step two is giving your money direction and permission to be spent on the things that are important to you.
Here is the thing, while we hear the horror stories of someone losing sudden wealth, you don't hear about the many that don't maximize it.
Money is a tool and the best tool in your garage going unused does no good.
A budget done correctly gives you the freedom to spend on important things and avoid making the mistake of compound spending.
Remember the old adage, what gets measured gets managed and this is certainly true when it comes to money.
Now let's talk about how we take that sudden wealth event and get the snowball rolling.
Building Income Streams
The biggest advantage of sudden wealth is you get the snowball all at once.
The biggest disadvantage of sudden wealth is you get the snowball all at once.
Picture this ~ You are at the top of a mountain with the biggest snowball you can imagine. With one push it starts tumbling down the hill and without any other actions, it just keeps building momentum (and size).
This is the opportunity anyone coming into sudden wealth has.
You see the hardest part of building wealth is building the initial snowball.
So our goal is to preserve sudden wealth ~ Said another way how can we keep our snowball while using the little bits of snow it shoots off?
In finance, we call these income streams.
Those income streams are sustainable as long as the snowball doesn't lose its momentum.
So the key to this whole game is to understand how to position your money (the snowball) in a way to build income streams.
For a deeper dive into how we think about investing money, check out this blog on investing for professional athletes.
Sudden Wealth - An Action Plan
Managed correctly sudden wealth is a surefire way to create generational wealth.
Yet, the two most common outcomes are spending too much or living a life filled with financial anxiety.
The good news is you can take action with the steps listed above to start your journey to a successful financial outcome.
Step 1 - Get Clear On Your Goals
Step 2 - Map Out The Total Costs
Step 3 - Find Ways To Create Income Streams
We started Moment to help athletes and entrepreneurs navigate sudden wealth.
It is something that I have experienced firsthand and our team has helped countless athletes and entrepreneurs navigate.
If you are a professional athlete or entrepreneur looking for help planning around sudden wealth schedule a call with our team.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions received regarding sudden wealth:
How do you determine how much to spend?
For us, this is an ever-changing process that starts with understanding current spending and working off of that as our baseline.
What is the biggest mistake you see with sudden wealth? Without a doubt, it is spending before getting educated. The key is building a roadmap before building a lifestyle.
What role does budgeting play in sudden wealth?
We find this to be critical both in providing guardrails for spending and giving one permission to spend on the things they value.
How should those navigating sudden wealth think about investing?
We use the analogy that you have hit the home run and now the key is finding a way to consistently hit singles and doubles with your investments. Our number one goal is protection and staying in the game.
*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
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