Managing sudden wealth

Your long-lost uncle in ‘foreign’ died and left you, his favourite niece, several thousand US dollars. (Uncle Lyn, remember me?) Or, you spent J$20 and beat the odds. Whatever the source, you’ve just come into a bucket load of money. You lucky girl. And while my good friend touts the ‘poverty sucks’ banner, running to the UK and shopping the sales at Harrods or the new hot department store across the street, Harvey Nichols, is not the best way to deal with sudden riches in the short term.

And I emphasise, the short term, because having a nice chunk of change in your bank account entitles you to have some real fun, once your financial house is properly sorted out. So the order of the day is to get your priorities straight. Because a fool and her money will soon be parted but Pinching Pennies readers are not fools, so winning, inheriting, or just plain finding monies in excess of J$100,000.00 calls for some planning. And I can hear some of you saying that $100,000 “ah no money” in today’s economy. Fine.

Capital and Credit Securities offers this advice: Put money away for 3-6 months after winning and earn interest on this money. Even when you decide to spend the money, put $100,000 – $200,000 away for emergencies.

JN Fund Managers on the other hand suggests two paths that one can take. The first being to lock away the money on a fixed deposit and pretend that it doesn’t exist, and go about your life as usual to allow the money to earn interest over the set number of years. However, if you have a specific plan in mind, then they suggest that you invest the money for at least one month before committing to the plan in mind.

But, what if you don’t win the money in a lump sum? What about those who win money and are paid in monthly installments? For those persons, the credit unions may be your best place to invest.

Most credit unions such as City of Kingston suggests a long term savings plan where you sign an agreement to save, say $50,000.00 every month to get to a $1,000,000.00 at the end of the contract. Then if the worst happens and you die before reaching the savings goal, your beneficiary will get the agreed savings goal. So this offers some type of protection for your loved ones. For those with the discipline to save say $100,000.00, of their winnings per month, at the end of a year they would have $1,251,000 after taxes. So the money would earn $251,000.00.

At Manufacturers Sigma Bank, the caution is to take it, “one day at a time,” after winning money. Pinching Pennies is told that the first decision one must make is how much of the winnings will be committed to different projects. Again, we are told that fixed deposits allow persons to take the time to decide how to use their money while earning interest. It is also suggested that foreign exchange purchases would be a good investment in this economic climate.

However, if you are in mind to spend money, real estate is an area that many Jamaicans think of first whenever large sums land in their hand.

Realtor Gary Heron of V B Williams Realty states, “I would advise winners to consider buying apartments and townhouses that earn income. I would advise persons to pay down on a property and get a mortgage from the NHT or building society. If the winner is young enough, she could buy a piece of land and hold it or build on it later”.

V G Clarke, Realtor and real estate counselor also echoes Heron’s sentiments on real estate purchases. “Buy land! It is a good investment especially if you are young. As real estate counsellors, if our clients can’t find suitable properties, we tell them to invest in Government paper or a fixed deposits. When they find a property they like, the money is there ready for them.”

So there you have it, investing sudden wealth boils down to making sound decisions that will benefit you as the years pass by. Don’t go into money shock and purchase anything that catches your eye. Various financial counsellors suggest these additional sudden wealth management tips:

*Get organized.

Before rushing to buy any and everything that will impress family, friends and neighbours, decide what you really need. Have an action plan before spending the money.

*Have a clear understanding of your financial situation.

-What are your assets?

-Who do you owe money to (liabilities)?

-What is your income?

*Set clear priorities

-What to you want to do with your life?

-How do you want to live?

-What is important to you?

-Do you want to have money for your children’s education?

-Do you want to give money to charities?

*Get a financial advisor.

Now is a great time to speak to your bank manager or financial institution advisor. They can steer you in the right direction and give you guidance on how to spend the money wisely. A good advisor will protect you from yourself. Really, they will help you manage your millions and help to turn your new money into more money.

So, take a deep breath. Count your money once, maybe twice and take the time to make good decisions.

Enjoy your good fortune.