It can happen out of nowhere. Money that you may or may not have expected enters your life overnight. But what is sudden wealth? While most of us are used to gradual money- earnings that primarily come from income, sudden wealth is money that well, comes suddenly, which means we are getting more money than we are used to. We get an immense amount of money all at once thanks to our talents in sports (tennis, soccer, basketball, formula one race,…) or entertainment (acting, tv hosts,…). There is no clear definition when it comes to the amount to qualify as sudden wealth. However, the distinguishing factor is that the financial wealth has to be large enough to take you out of your financial comfort zone. 

If you live on a paycheck to paycheck basis then out of the blue get a check for EUR 100,000, this will most likely push you outside your comfort zone. However, if you are a multi-millionaire, and you inherit EUR 100,000, this might be something normal to you. The amount is not important when we talk about sudden wealth. Therefore, sudden wealth can be objective in a way, as your personal financial situation will determine your response to the windfall. 

But where does sudden wealth come from? In most cases, budding athletes and entertainers experience sudden wealth on their debut. Whether your sudden wealth have resulted from sheer luck or hard work, it’s money that you must spend wisely.

Common Sources of Sudden Wealth

• Lawsuit
• Divorce
• Sale of a business
• Inheritence
• Lottery
• Sports and entertainment contracts
• Retirement packages
• Stock options

Regardless of where your money comes from, remember that you are the same person you were before your received a huge chunk of cash, and suddenly you find yourself thrusted into a very uncomfortable situation. Sure, sudden wealth is something to celebrate about, but it can be worrisome too. In some cases, it can case an immense level of anxiety and fear for those who fail to adapt a tailored wealth management strategy. 

So for athletes and entertainers who just received an attractive contract, here are tips that will help you manage your finances efficiently in the long run. 

Come up with a sudden wealth financial team 

• You need a reliable team of financial experts that specialize in sudden wealth management. 
• You need a dedicated team that can assist you in navigating tax, legal, and financial issues. 
• It’s important to build a sudden wealth team to take advantage of tax breaks. 
• Your sudden wealth team should consists of an accountant, estate attorney, and an expert financial advisor. 
• The main role of your sudden wealth team is to have your best interests in mind. 

Compute your take-home wealth after taxes

• Sudden wealth from difference sources have their own sets of benefits and ramifications. 
• For instance, a EUR 20 million contract may actually be worth less than EUR 10 million at the end of the day. You need to look at the taxes that you must pay when receiving sudden wealth. 
• An accountant will help you calculate how much tax you owe. 
• When calculating your end of the day figure, you must also consider your existing legal obligations, such as mortgage, car loans, and unpaid debts. 
• You may have the option of paying all your liabilities at once or scheduling their payment. The right choice will depend on your end of the day figure and tyour total liabilities. 

Create a to-do list 

Once you’ve paid all your taxes as a result of sudden wealth, the next step to is to come up with things you want to own. Sudden wealth means that you can pay all your debts and buy the things you need. For instance, it’s best to allot a percentage of your sudden wealth on important matters, such as paying off your mortgage, creating a fund for your education or that of your children, and savings for retirement, to name a few. 

The next on your list are the things you want, but not that much of a priority. For instance, travel, additional cars, and gifts are things that you can spend your sudden wealth on. 

Get financial education 

Invest time on educating yourself about finances. If you have a financial team, they will be able to explain to you various concepts and strategies that will help you manage your windfall more effectively. You may also take classes at a local university or take up personal financing courses. There are also courses dedicated for sudden wealth management. 

Monitor your sudden wealth 

When you receive sudden wealth, you need to constantly monitor where your money is and where it goes. The customized financial plan that your team created should be constantly updated, so you can keep track of your finances.

If you are a professional athlete or entertainer, your schedule is hectic most of the time, so you may want to schedule a brief with your financial advisor every three months, at least. You will be in a much better financial shape if you diligently monitor your money and be more conscientious with your spending. 

Here are the things that you must keep yourself updated with every quarter:

Net worth 

This refers to how much you are worth after paying all debts. Excessive spending and poor investment returns can eat away your assets and decrease your net worth in the long run.

Cash flow

This will show you the running tally of your income and expenses. A financial wealth advisor will help you determine exactly the amount you earn versus what was spend over a given period. It is critical that you are aware of both your income and expenses. Are you earning less than you expected? Or are you spending more than what you originally planned? Occasionally, earning less or spending more than you originally planned shouldn’t be a major problem. However, if these things are happening regularly, you may need to make changes to your financial plan. 

Investment summary

It’s important that you are aware about how your investments are performing. You must have a quarterly financial update to evaluate the performance of your investments and have a clear idea of your financial pulse. Your sudden wealth is not unlimited; hence creating new money through investments is an integral part of your financial planning. 

Receiving a substantial amount of money presents many challenges and opportunities for athletes and entertainers. When you receive sudden wealth, it’s important to remember not to rush into anything. As a skilled financial consultancy firm, with a culture of family office, Damalion will give you expert advice and the time you need to get used to your new financial situation and help you in making well-informed decisions along the way. Our global service network consisting of wealth management experts, accountants, lawyers, and advisors will provide you with the tools you need to efficiently manage your wealth based on your needs, goals, and long-term plans. We will help you in creating a reputable sudden wealth management team that will help  in developing strategies that are designed to go far beyond basic financial planning, with the aim of further boosting your financial wealth. Whether it’s investing opening a bank account for asset protection, real estate investing, opening an investment vehicle, or creation of a hedge fund, Damalion will be with you every step of the way. To learn more about expert wealth management for sudden wealth, reach out to a Damalion expert today.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.