Special Report

13 Things to Do If You Suddenly Become Filthy Rich

5. Create a Budget That You Can Live With

Now that you’ve received all the upfront advice, it’s time to think about what you would like to do with your money, after you have thought about how you really want to live. Getting with your new financial advisor and coming up with a budget is imperative for your future financial health. If you suddenly come into $1 million, a budget of $10,000 will last you for just over eight years, without considering income or losses. Averaging just 2% per year for the very conservative barely moves the needle on how long the money will last. Worse, what if your investments were too aggressive and they lose 25% in a short time?

Setting a budget and making contingency plans for when things may go wrong may help you maintain acceptable income for many years. You’ll need to think about all the spending habits and aspects of your life (even gifting and traveling budgeting). Then you are going to have to consider things like how inflation and basic price changes will play in over time, knowing that costs tend to rise through time. Now for the hardest part of making a budget: living within the limits.

6. Live Up to and Honor Your Existing Obligations

Contrary to what some people may think, the wealthy actually still do have to pay their bills and live up to their obligations. If you are suddenly flush with cash, it might make sense to go pay off all of your debts. This will be influenced by what your advisors tell you, but it’s important to still live up to or pay off your financial obligations from before you struck it rich. Wrecking or adding damage to your credit might not help you ahead just because you suddenly became rich. With such low interest rates (and even zero-percent financing) it could conceivably be best to keep your debt and pay it off on your current schedule. However you decide to handle things, getting a bad name is not worth it. In the end, just don’t forget about nor try to just walk away from the debt and obligations you had before you became rich.

7. Make Your Money Work for You

This is where your financial advisory, lawyers and tax pros cumulatively are going to help you, and it lays the foundation for all of your contingencies inside of a budget. Some people who quickly become super-rich change very little about their lives. Some even keep working every day. But for those who will quit work entirely, or for the most part, it’s important to consider the phrase “It takes money to make money.” Individuals can only earn so much per hour from work, and there are only so many hours one can work each day. With a budget, knowing what you can reasonable buy, and dealing with advisors, letting your newfound capital earn money is crucial. Otherwise you could foolishly spend it all rather quickly, even if by accident. The rule of thumb in the past was that investors could expect as much as 8% returns from stocks, but it may be much less now.

8. Avoid Highly Complex Strategies — KISS

Now that you’re rich, and even considering that you now know you have to have solid tax advice, legal advice and financial planning, keep it simple — or Keep It Simple Stupid! If you get pitched on international tax shelters or on highly complex strategies that make your taxes low today, you better seriously consider what can happen after that first year. Many of these strategies have been back-end loaded with larger burdens in the future. Many structures can lead to IRS or state tax audits, and some of the schemes can even land you in jail or facing sharp fines and catch-up penalties with interest.

Obviously there are exceptions here, but complex and complicated trusts, offshoring and other complicated structures may end up sounding a lot better than it might turn out to be. You also have to consider that in the future, taxes on the wealthy are likely to rise more than they are likely to fall.

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