Last weekend I went hiking with my girlfriend and another couple. As we climbed the scenic route, one of the topics that came up was how people cope with an unexpected accumulation of money. We talked about how football stars go broke by their 40s and how rapper, 50 Cent, bought a mansion he couldn’t afford.
These are all stories of how a lack of knowledge in personal finance can destroy your wealth later in life. Here’s the definition of Sudden Wealth Syndrome (SWS) from Investopedia:
Sudden wealth syndrome (SWS) is a type of distress that afflicts individuals who suddenly come into large sums of money. Becoming suddenly wealthy can cause people to make decisions they might not have otherwise made. Sudden wealth syndrome symptoms include feeling isolated from former friends, feeling guilty about their good fortune, and extreme fear of losing their money.'
I’ll admit don’t know anyone who has experienced this. Can you imagine what you would do if you won the lottery? I like to think I’d treat myself once and reinvest the rest into making more profits. However, a lot of people experience lifestyle inflation where they start to purchase larger ticket items without accounting for their finances.
What would you do if you won $1 million dollars tomorrow?
Plenty of researchers offer the below common advice for those experiencing sudden wealth syndrome:
Be selective with who you tell (even family)
Budget the money on a monthly level responsibly
Plan your future in advance and continue achieving your goals
Those who have experienced SWS demonstrate higher levels of loneliness and isolation as they’re unable to return to the life they previously lived.
If you find yourself in this situation, it is wise to lock the funds away and pretend your life hasn’t changed. Good luck and have a great weekend!
-Jordan