What would you do with $100,000

November 28, 2018

As a financial advisor of more than 35 years, I’ve had the opportunity to see firsthand the strange tragedy that takes place when many people encounter a financial windfall - what we term “sudden money”.

When it comes to sudden money, most people are just not well prepared for it.

This interesting fact came to light many years ago when I came across a small book about the size of a Reader’s Digest that went into detail about what happens to lottery winners and their money. The author had dedicated one to two pages to each winners’ story. It was a disheartening read - the essence of almost every page was that in addition to inflaming personal relationship stresses, hardships, and tragedies the money was usually gone within a few short years!

Wanting to hear more, I contacted the author of this book. He said that people in general don’t get good financial help when they unexpectedly come into money (like the lottery) and they really need help, otherwise they’ll likely lose it.

There is much truth to his research and according to the National Endowment for Financial Education, about 70% of people who suddenly receive a windfall of cash will lose it within a few years.

Our respect for money influences how we spend it

Working with clients for over three decades, I’ve had the opportunity to speak with many people about this strange tragedy that takes place with sudden money and have come to the understanding that for most people,

   The money that you earn, you tend to have a higher respect for than the money that just lands in your lap.

What it boils down to is our attitude about money. For some reason, our attitude about money (and how we spend it) is influenced by how it was “earned”.

How can you avoid this strange tragedy?

Calling a Timeout

I’ve encountered sudden wealth many times, particularly with clients where a young person is going to inherit a good amount of money. In this case, I really encourage that person to call a timeout. Don’t address the issue of how to spend it right away. Rather give yourself some time before making any big financial decisions.

Let’s use the example of someone coming into a $100,000. In this case, I would recommend the individual take $90,000 and put it into an investment that will be held for a year to 18 months. The remaining $10,000, go and spend it, have a good time.

There is this part of us that needs to have a good time. We’ve fallen into this good fortune so why not have some fun with it? But just a limited amount of it. For the remainder of the wealth, let’s rather adopt a different attitude and approach with this money.

Let’s not make any big decisions with regards to the grand scheme of things or how to invest in it for the future. I tell my clients,

    Let’s just get accustomed to having that wealth sitting in your accounts.

Rather than surrounding this money with commitments or running out and paying off debts or putting it away for college, let’s first just get used to having that money and allow some time to be able to adopt the attitude and approach that it deserves.

In my experience, I don’t think people are in the right frame of mind when they come into sudden wealth. It’s at that point in time when it’s time to step back. Call a timeout and first get used to having the money in your account before doing anything with it.

What Typically Happens

I see people typically apply it to debts and they might buy themselves something nice. We’ve all been told that debt is bad. So, it makes sense to pay off debts first, right? What happens is after 6 months the debts are paid off, a few new things purchased but the wealth is now gone.

Not that I am against paying off debts. However, jumping the gun and running out of the gate and paying off debt may not be the best move. Let’s take a timeout and think about this a little bit.

 f a person has a debt they are paying 4% interest rate on and we can find something that can potentially provide at least a 4% return or better on invested money, then we have something to talk about. This wealth can be used to cover the ongoing cost of the debt (the interest) thereby providing time to think how best to use that wealth while it works for you.

When we have money that lands in our lap we tend to get reactive, we get impulsive. Gotta take a trip, go on that cruise. Why go on that cruise now? Why not wait a year or two and let that money create the money to buy that cruise - Wouldn’t that be a better option?

Why a Timeout is important

Oftentimes when folks come into sudden wealth they really aren’t prepared to give it the thought or responsibility that it deserves. A timeout buys you time to think and talk about what you want to do with it.

It’s an opportunity to have a number of conversations about other financial and investment options. It gives you time to see the market move, economic events transpire, world events take place and knowing that you have money to invest will naturally spark new types of conversations.

Knowing that we have a longer term plan puts you into a frame of mind where you begin looking for things and asking questions about how to invest that money. You research new ideas, ask questions, and have discussions along the way of what that might look like.

Naturally as we learn many more questions arise.  Like any new venture, we don’t know what we don’t know when we begin.  Taking the time to become familiar with investment options and opportunities can prove to be time well spent.

My job as a financial advisor has always been to help my clients flush out suitable choices and work towards getting into investment discussions where a long term plan is developed.

Age Vs. Spending Habits

Our age and where we are in our lives has a big impact on how and what we spend our money on. A twenty year old who comes into sudden wealth will approach this money differently than a sixty or seventy year old.

For example, if a twenty year old runs out and buys a car with his inheritance - how can you find fault with that? Everyone needs a car. Should he buy a $30,000 car or a $100,000 car? Now, that would be a different conversation.

As we get older, our priorities change and we don’t have that impulse to burn the money so quickly. Those in their thirties and forties may be looking at these years in terms of accumulating wealth. In which case, investing with a specific goal and longer time frame may by a wiser choice.

Those in their 50’s and 60’s, it’s likely most of their life’s major expenses have been taken care of and now we are talking about retiring early. How does that money that landed in your lap help you get to there and perhaps enhance your lifestyle along the way?

The idea of going slower with sudden wealth applies to everyone, regardless of age.

It all starts with a conversation

When clients come into sudden wealth, whether it be inheritance, lottery winnings, insurance proceeds, corporate buyouts, signing bonuses, golden parachutes or other form it’s always a great conversation to have with them. This is where the client has the opportunity to wonder out loud, brainstorm and explore different opportunities and take the time necessary to become familiar with their new options.

If you find yourself in the fortunate situation of receiving a financial windfall I hope you find these thoughts helpful.  

Over the years, I have worked with my clients patiently, sincerely, and have always tried to be as helpful as possible.  If I can be of assistance to you just let me know. 


Bruce Kramer is a Financial Advisor with LPL Financial and has been helping clients in that capacity for 35 years. While not able to reply to comments posted on this article due to regulatory reasons. If you would like contact him with questions or comments he can be reached via email  bruce.kramer@lpl.com or through his website: http://www.rbrucekramer.com

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. Securities offered through LPL Financial, Member FINRA/SIPC.