Let’s say you have recently sold one of your properties and liquified it. Now the sale has left you with a huge sum of money at hand. For efficiently managing the money left with you and creating new wealth, it is important that you know how to do so, as the consequence of mismanaging your wealth can cost you dearly. One of the major issues of not knowing how to handle sudden wealth is that you increase your spending habits with the raise in your wealth. Some of the strategies for managing sudden wealth for a sustainable lifestyle and future benefits have been listed in this article.
Identify Your Goals
The first step of sudden wealth is to get used to it as we tend to increase our expenses and opt for large purchases. Wealth managers have stated that, by identifying your goals, you will be able to use your wealth most efficiently. You are required to set your long-term and short-term goals and check whether you have enough to accomplish your goal. It is also important to check if anything is pending after accomplishing your goal.
The best way to strategize or plan your wealth would be to create goals that incorporate every aspect of your financial life. In this method of the Goals Driven Wealth Management Approach, goals can be categorized into four major categories such as lifestyle, dream, family, and legacy.
Hire a professional
There are two different advantages in hiring a financial advisor or a wealth manager. A wealth manager or financial advisor can help you understand what you want and what you can’t, with the sudden wealth you are experiencing. When you are bestowed with a large sum of money immediately, you may not know how to channelize it. Thus a professional wealth manager and financial advisor can be beneficial as they can help you estimate your financial capacity and also help you with planning and setting out your long-term financial goal.
They can help you in determining the amount that you can invest in your children’s education and how much you can spend every year, without running out on your money. You must quantify or add value to your dreams before starting to spend on accomplishing them.
Now that we are faced with the challenge of recession and financial instability, a financial advisor or a wealth manager also comes in handy in re-assessing your risk tolerance and providing you with different options of reinvestment.
Reassess your risk tolerance
The pandemic has eroded the investment portfolio of several investors. Many of their investments and returns have been affected and wealth-creation has become comparatively difficult due to the prevailing conditions. Thus you must assess and re-assess your risk tolerance capacity. To identify your risk tolerance, you have to consider your actual ability to take the risk brought in by your investment and also the risk you are willing to take. It is very important as there is uncertainty as to how long the pandemic will last. Thus it is recommended that you do not take risks far beyond what you can tolerate.
An accurate reassessment of your risk tolerance capacity, can facilitate wealth creation and also protecting it at the same time.
Reinvesting your wealth
You may consider real estate as an option at present as the value of property in several real estate markets has gone down due to pandemics. Reinvesting your sudden wealth in real estate can be an advantage as it is long-term financial security even though it is not easy to liquidize it quickly. Investing in commercial properties can earn you high rates of return while investing in rental properties can earn you a stable income. With the income restrains caused by the pandemic, rental real estate is a recommended option as you will have different sources of income.
As already stated, the investment environment is also not the same as before. Depending on your age, risk appetite, goals, and return expectations, it is recommended that you invest in different asset classes. By doing so you are diversifying your investment portfolio and also reduce your risk. A major reason for portfolio diversification is because the return you earn may vary from one asset class to another. An example of this may be that the return percentage of equity investments may have reduced due to pandemic in comparison to debt investments. Therefore, you must know the rate of returns on your investments to decide on what proportion you have to invest.
Know the common mistakes
Experiencing sudden wealth can bring a person both opportunities and challenges. Here are some of the common mistakes committed by people:
- Not having your goals and plans set.
- Not planning your retirement
- Increased monthly expenditure
- Tax expenses
By knowing the common mistakes, you can channelize your sudden wealth in the best possible manner.
Sudden wealth can be overwhelming and exciting. Sometimes driven by these excitements, we tend to take the wrong financial decisions. Wrong financial decisions can put you in a tough spot and thus you must plan how to utilize your wealth. Setting up long-term and short-term goals may be beneficial as it helps you determine the amount required for each goal and how much you will be left with after attaining them.
Appointing a professional may also be a good idea as they can help you in understanding different asset classes and determining the different ways to channelize your asset. Assetmonk is an investment online investment platform providing real estate opportunities to clients in cities such as Bangalore, Chennai, and Hyderabad. Assetmonk offers investment opportunities on long-term and short-term basis. Our products have been categoried into growth, growth plus and yeild products categories. Visit us for more details!
Frequently Asked Questions on sudden wealth management:
In case of experiencing sudden wealth, it is recommended that you set up goals by analyzing their financial requirements. By doing so you will be very well informed on how much you need to invest and how much you can save after investing. The pandemic has put all investors in a difficult position. Thus it is also recommended that you decide how to channelize your wealth in different asset classes as the return on each of them varies. You may also take assistance from a wealth manager, asset manager, or financial advisors.
You can channelize your wealth into different asset classes such as equity investment, debt investments, mutual funds, insurances, real estate. All these options provide you with a different rate of return. Some are liquidity assets while others aren’t as liquid as others. By investing in different asset classes, you can diversify your portfolio and also reduce risk in the future.