Candace Bahr, co-founder of the Women's Institute for Financial Education.
Candace Bahr, 53, is the owner of Bahr Investment Group in Carlsbad, Calif., specializing in clientele with assets of $1 million and more. She and financial planner Ginita Wall are the founders of the non-profit Women's Institute for Financial Education, originators of the Money Clubs for Women.
Don't most people already know what they want to do with a windfall?
A number of years ago, I had a client whose husband and two of their four children were killed in a tragic accident. She received more than $2 million from the party that was at fault. But after she received the money, she seemed to do everything in her power to get rid of it. She spent lavishly on her two remaining adult children and gave away large sums, so that by the time she came to me, there was little left of her settlement. She couldn't hold on to the money.
So emotions play a big role, right?
Receiving sudden wealth can stir up feelings of guilt, anger, confusion and fear. In the case of my client, the money was tied to deep-seated feelings of loss and sorrow. She wanted to comfort and protect her adult children by showering them with money. The problem was that she was trying to replace the loss of half of her family, which was irreplaceable.
Everyone reacts differently to sudden wealth and certainly the source of the money has a great deal to do with how it is handled. I once heard it said that the only problems that money solves are money problems. That couldn't be truer. In fact, tremendous sudden wealth can actually create problems. You've heard the stories.
What about dealing with family members when you've received money and they haven't?
I have a client who recently received a large inheritance from a distant relative. It was perfectly logical that she should be remembered in the will as she was the only family member that stayed in close contact with her great-aunt. Yet, she was ostracized by the rest of her family because they were not included. Initially, my client was inclined to simply give it all away. The family's pressure was overwhelming. Over time, we worked out a plan that benefited her and allowed her to share her good fortune with her siblings. We also developed a giving plan that allows her the satisfaction of helping some local charities because she wants to, not because she's trying to dump the money.
Does money change a person?
Receiving a windfall may require some adjustments to your mindset as well as your financial life. If you come into an unexpected windfall, it's important to take time to adjust to your new circumstances. You may want to seek counseling from a therapist or member of the clergy to work through the difficult emotions you may be experiencing. Even if you're elated, don't make any hasty decisions about what to do with the money. Just allow the reality of the situation to sink in, and let yourself get comfortable with the idea of having wealth. Park your money in a short-term savings instrument or money market account while you clear your head. (We generally recommend Treasury Bills as a good holding place while you are contemplating your options -- they are state tax free and fully guaranteed by the federal government as to timely payment of principle and interest. Plus, you can invest millions and feel comfortable -- you are not limited to the $100,000 guarantee on bank accounts.)
Meanwhile, think about the things that mean a lot to you -- your family, your work, your community -- and how you can use your newfound wealth to support yourself as well as the people and causes you hold dear. Remember, being rich doesn't change who you are, just what you've got.
If I've come into a windfall, what advice do I need?
The most important thing you can do in anticipation of a windfall is to get your professional advisors in place. Your initial support team should consist of your accountant, attorney and financial advisor. Make sure all your advisors communicate freely with you and give them permission to share your information with your other trusted advisors. That will make things a lot easier when you are ready to move forward. It sounds simple, but you'd be amazed how many people have advisors who don't talk to each other and then when you are ready to implement the suggestions you find the elements of your plan won't mesh. We've found that if we go with our clients to their accountant's or attorney's office, or have frequent conference calls, it helps keep us all on the same page.
If news of your windfall is common knowledge -- for example, your high-profile divorce was broadcast all over the region -- you may be inundated with calls from salespeople eager to offer assistance. Be wary of unscrupulous individuals. Never buy anything from a cold call. Make sure the financial advisor you choose has at least 15 years of experience and frequently works with people in your situation. Conduct a thorough reference check on anyone with whom you plan to do business. The right financial advisor will have your best interests at heart, and will focus on creating a long-term strategy to help preserve and grow your money.
When do we get to the part where I get to go on shopping sprees?
Once you've given yourself time to cool off, you'll need to start mapping out a plan to manage your money. The first step to financial planning is knowing what you're working with. Your windfall may be coming to you piecemeal, or all at once. Find out when and how you will receive the money, and check with your accountant to find out what the tax implications are. Once you know the final sum you're owed you can begin to strategize a spending and investment plan to meet your needs. Do you have any outstanding debts that need to be paid off, such as credit card balances or personal loans? Are there future expenses for which you should earmark funds, like a child's college tuition? You will want to set money aside to meet these obligations before you take any other action. Here's where your input from your financial advisor is invaluable.
Wait, I'm rich. Why do I still need a budget?
Now it's time to tackle the bigger issue of budgeting for the long-term. Creating a budget may sound silly if you've come into millions, but without a fixed spending plan, you could wake up one morning to discover your wealth is already gone. As part of the budgeting process, look for ways to get the most bang for your buck. That's not to say you can't have any fun -- your budget should include money for meals, trips and entertainment. But in the big picture, be sure to consider the long-term implications of your spending decisions.
After taking care of your expenses, you can start thinking about investing. The nature of your investments will depend on a number of factors, including your age, income needs and the level of risk with which you're comfortable. As a general rule, you should have money set aside in an emergency fund, plus a range of investments geared toward meeting long-term goals as well as generating current income. And don't forget about estate planning -- by establishing a trust or other investment vehicle, you can help ensure that your children and grandchildren will live comfortably too. Whatever investment vehicles you consider, you'll need to speak with your accountant and your financial advisor about the tax implications.
What if I want to do something good for other people?
Finally, don't forget about charitable giving. Having access to wealth can open up incredible opportunities for helping others, whether in your local community or on a global scale. Think about the causes that matter to you -- would you like to donate money toward environmental protection, offer assistance to the homeless, fund breast cancer research or support your alma mater? Your financial advisor can suggest a variety of tools for charitable giving and help you create a financial plan that reflects your personal values.
Having a mountain of money bestowed on you can throw even the most financially savvy individual for a loop. Feelings of confusion and fear are normal and should not be ignored. But in the bigger picture, access to wealth can be a tremendous boon, both for you and the people close to your heart. If you receive a sudden windfall, remember to keep your emotions in check, seek professional guidance and plan wisely. That way, you can use your wealth to do a world of good.
Women's Institute for Financial Education