How to Steward a Financial Windfall

Dear Friends,

When I put out a call for thoughts/questions/comments about windfalls on social media, you gave me an earful. This is a hot topic, and you’re not alone in having mixed feelings about windfalls.

Even though I know a lot about investing, I can’t give you specific tactical advice (Sorry, I know that is what you want!). In any case, everyone’s circumstances are different, and general answers are dangerous – what’s perfect for you could be fatal to another reader.

But I do teach how to think about and how to get in “right relationship” with money, which is the most critical but most ignored step in the process of cultivating your riches (inner and outer).

So I’ve tried to plant some helpful seeds in this issue. Let me know if they take root, for we are all in this together.

Love,

Mariko

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I count my blessings.

Among them, my grandparents paid for my Princeton degree, my dad having predeceased them when I was 15. They had the means to do so, and thankfully they valued education. And because I graduated in 1983, before college cost more than a small country’s GDP, money was leftover.

But at the age of 25, I treated that windfall like a hot potato.

I wasn’t ungrateful.

I was afraid.

Because as fast as some people in my family made money, others squandered it. I grew up hearing stories about my much-older half-brother buying a fancy sports car, among other dumb purchases. And my father, who was both a visionary and an alcoholic, invested the chunk of change he’d been given into two failed business ventures.

The first money pit was building a hotel on Anguilla, a small island off of Antigua, which proved uneconomic in the early ’60s, but 50 years later became the site of the swanky Jumby Bay resort.

The second was a more logical investment, a car rental franchise in the French Caribbean. His drinking got the better of him, and he landed in jail for either tax evasion, check kiting, or being persecuted by the local business elite, who were used to owning everything (or all three, I have no idea). From one day to the next, my mother shipped me off to Hawai‘i. My parents fled the ruins of my childhood six months later, leaving everything behind.

It’s no wonder I didn’t trust myself not to do something stupid.

I wanted to eliminate or make the windfall inaccessible to me as fast as possible. That is how I ended up using it as a down payment and paying the asking price for a dilapidated c. 1783 stone cottage by the last covered bridge in New Jersey.

It was a brilliant solution to a non-existent problem.

To be fair, we were living in a 450-square-foot NYC apartment, and the walls were closing in. A college friend had a family farm nearby, and I had first fallen in love with the cottage years before on a visit and promised I would live in that witch’s cottage someday.

The day we saw the For Sale sign, it seemed like fate.

Never mind that my mother and mother-in-law had the same reaction upon setting foot in the shambolic structure – horrified silence. No doubt the smarter thing would have been to actually put the money to work in a way that would build capital, rather than overpay for real estate that subsequently sucked up gobs of cash and energy.

I had only just started working on Wall Street and didn’t know any better.

The cottage, in a bucolic part of New Jersey (yes, there is one), was an escape from the city. It had a borrowed landscape of black and white cows and became the holiday gathering place for our families. It was a magical spot. I never regretted the decision. Not all life decisions require the smart allocation of capital.

A life well-lived is not measured by the accumulation of wealth.

The point is, my self-concept did not allow me to envision handling a windfall responsibly. I was uncomfortable and got spooked. So I copied Odysseus when he asked to be bound to the mast so he could resist temptation when sailing past the Sirens.

You could argue I did worse because I not only “tied the money up” but tied it up into a negative free cash-flowing asset (a.k.a. a money pit), violating one of the ten commandments of finance. I wasn’t even thinking about whether I was tying it up wisely. It wasn’t a capital allocation decision. It was a get-rid-of-these-doubts-and-discomfort decision.

To make a long story short, windfalls often do not bring joy.

There are many other not-so-great feelings associated with windfalls, from guilt to shame, fear to dread.

If the windfall is an inheritance:

• Someone had to die. You’d trade having your beloved back by your side rather than have the money. Every dollar you touch reminds you of their absence.

• It’s blood money. Money that descended from illegal means, like mob money. Or from unspeakable acts of human cruelty, like the slave trade. Such money is hard to enjoy, but reparations are worth exploring.

• It’s haunted money. You hear your grandmother scolding you to “never sell the IBM” and so you don’t because deep down, you don’t believe this inheritance is really yours to do as you please.

• It’s conflict-filled money. Maybe there were awful fights about the estate, because your sister is convinced your parents favored you, and “you always got more than your fair share.”

• It’s a heavy legacy to steward. The money has been in the family for generations, and you feel like its servant, like the Earl of Grantham in Downton Abbey. You serve the capital, it does not serve you. You are just a temporary custodian for the next generation. Even if no cash-guzzling architectural marvel is involved, you’re bound by rules such as “never touch the principal.”

Money is inert, but we enliven it with meaning, affecting what we do. Will we cherish and steward with care that which is riddled with negative emotions? Probably not.

If the windfall is the fruit of your labors:

• You secretly believe you don’t deserve it. Your start-up just got bought out. Your pals, who you think are smarter and harder working, are still struggling. You feel you were just lucky and don’t deserve to be on Easy Street compared to them. So you just let it sit.

• You don’t know how to be rich. You grew up poor, and your friends and family struggle to make ends meet. They’re happy for you but can’t relate to your money problems, which stem from not knowing what to do with it, rather than not having enough. Sure, you’ve worked hard, got lucky, or made different choices, but now you’re making more money in a year than mom and dad made in a lifetime, and that feels wrong.

  You no longer know how to navigate the simplest things, like Christmas. Can you give your nieces and nephews expensive presents, or will your siblings resent you? Can you offer to take everyone on a family vacation, or will they think you’re being a show-off? You fear money will poison your relationships.

It’s hard to enjoy wealth when it comes with a large helping of guilt.

If the windfall comes strictly from chance:

• You devalue it. This is Monopoly money with purchasing power. You didn’t earn it, suffer for it, or work hard to get it, so it doesn’t count. It’s a well-studied phenomenon. You ascribe more value to the Ikea closet you spent many hours cussing while assembling than you do to an identical but ready-made one. This “Ikea effect” is even stronger with “found” money, where you don’t apply the usual money rules. Rather than paying down debt, investing for the long-term, or saving for a house, you spend it on frivolous things, because it’s not “real” money.

If the windfall comes from other trauma:

• PTSD money is loaded. If you got an insurance settlement after a bad crash or a legal settlement from another kind of traumatic event, you’d happily give up the money in exchange for not having had that happen to you. Can a price tag be put on your suffering?

• Divorce settlements are fraught. Suddenly, you are no longer making joint decisions and planning for a future together. These are often angry dollars, betrayed dollars, and heavily fought for dollars. The money is a souvenir of lost hopes and dreams, tied up in a bow of anxiety about the future. If you weren’t the primary steward of the family jewels, your divorce settlement can make you feel even more alone and adrift.

Depending on how big a windfall is relative to your current net worth, you may experience a profound identity shift.

Puberty and menopause take years to get us ready for our next selves. Pregnancy takes months to shift our identity from “woman” to “mother.” But a winning lottery ticket, a big casting break resulting in a blockbuster movie, or an 8-figure sports contract are windfalls that can knock your identity on its heels instantly. Not only do you not know what to do with the money, but you don’t know who to trust for advice.

People also perceive you differently now.

Every con artist has you in their cross hairs. Every louche relative wants help. Every charity wants you to cross their palm with silver. You’re the same person you were yesterday — you just have more money. Why are they acting so weird?

It’s normal for this to be disorienting.

Give yourself the gift of time. You don’t have to make a lot of big decisions all at once. Invest and dole out your money and your trust in small increments, until you have your sealegs. People treat people with a lot of money differently, and it can take some getting used to.

It’s clear by now that a windfall may bring financial freedom, but it doesn’t necessarily feel good.

And before you can properly tend to it, you need to come clean about all those messy feelings.

So feel all the feels. Then create safety and acceptance of the situation that led to the windfall. (See Issue 002 on Jizo) Don’t berate yourself for not being 100% grateful and ecstatic. You get to be human. You get to figure this out on your terms.

Next, let’s get clarity.

Issue 003 on Manjusri may be a helpful read.

Now that we have money, we need to figure out two things. What do we want to achieve with this money? Not as in “I want a 5% after-tax return,” but as in an “I want to feel more secure,” “I want to ensure my kids are well-educated,” and “I want to explore my dreams (start a business, travel the world, buy a picturesque falling down cottage)” way.

Let’s get our inner desires sorted out first.

Then we can figure out what we need to know. As in, “what do we know we don’t know?” and “what do we not know that we don’t know?” Again, we can figure this out in increments. We don’t need to put it all in one pot, trust only one person, or make all the decisions in one go.

Here’s some tangible advice after you know your intentions:

Get your financial GPS coordinates.

Sit down and figure out what you own, what you owe, what your income potential looks like, and what other sources of income you’ll have in the future, like Social Security.

Know exactly where you stand, right now.

Do nothing until you understand the tax implications.

This is good advice for any money decision, not just windfalls. The tax filter is the first filter to run any math through. This doesn’t mean applying billionaire strategies like borrowing against volatile assets or doing things that don’t make sense just to thwart the taxman. It’s just that taxes impact everything, extending even beyond your lifetime.

Decide what takes priority given what you want to achieve.

What action steps you take will depend on your age, your health, your life situation, your earning capacity and desire, and your current financial situation.

Many of you asked about whether to pay off debt before investing a windfall. The answer – don’t roll your eyes – is it depends. If your interest coverage is no problem, the interest rate and terms favorable, the tax implications positive, and you can earn a better return elsewhere, maybe you don’t pay it off. If it’s credit card debt at a 21% APR you probably want to clean it up.

I am big fan of Ramit Sethi’s approach to personal finance, and you may find this free resource on debt management useful.

Put a time frame and parameters for coming up with a plan.

Daruma, The Third Bodhisattva of Finance would agree that it’s best to take action. Once you know what you have and what you want, you can get help figuring out what to DO. When you have clarity, it’s much easier to assess whether the people you’re hiring are competent, are fiduciarily bound to have your interests at heart, are transparent, and are in true partnership with you.

I’ll be writing more on how to hire, evaluate and manage a financial advisor in future newsletters. Stay tuned.