6 tips for handling a large sum of money

August 11, 2023

The day I started my first job out of school I realized the hiring team made a mistake.

I was on a team with financial advisors specializing in “liquidity events”. That’s a fancy way of saying we helped people who came into A LOT of money all at once:

  • Business owners selling their businesses.
  • Tech executives facing an IPO.
  • Real estate investors selling off their portfolio.
  • Large inheritances.

These people weren’t just wealthy; they were ultrawealthy: decamillionaires, centimillionaires, and even 1 billionaire.

On day 1 I felt overwhelmed. I had no idea how I was going to connect with these people let alone be a trusted resource for them.

But after just a few weeks in, I was shocked again. After talking to the ultra-wealthy every day, I found out something crazy about them:

They were completely normal.

And even more shocking?

They had the same psychological biases as the rest of us do with investing.

They wanted to time the market, they felt more comfortable at market highs than market lows, and they were terrified of running out of money (even though it was virtually impossible).

Turns out being ultra wealthy does not make you immune to human emotion. I learned a lot about human behavior after watching dozens of people become ultra-wealthy "overnight".

So, today I want to share with you the top 6 things you should do when you "hit the jackpot".

Or if you want to say the fancy jargon-y way

What to do when you face a liquidity event:

  • IPOs
  • Inheritance
  • Business sale
  • Stock options vest
  • Lottery winnings
  • Sign-on bonus

Let's dive in.

1. Hire a team of experts.

If it’s just your yearly bonus, you probably don’t need to compile a team of experts, but if it’s a life changing amount of money?

Consider hiring experts.

Yes, I may have a bit of a bias here (as I am one of those experts), but after seeing dozens of people go through events like this I can assure you none of them regretted hiring a team of experts to lead them through the process.

  • CPA
  • Lawyer
  • Financial Planner
  • Therapist

This event will bring with it a mix of emotions. One second you're on top of the world and the next second you are terrified that this lump sum of money is now your responsibility.

The business you just spent the last decade building suddenly turning into a pile of cash can send you into a panic.

“How do I run a pile of cash?”

“What do I do every day?”

“How do I protect this money?”

The right experts have been through this plenty of times, they will ease your anxiety and guide you down the right path.

But please do your due diligence on the experts first to make sure they are in fact an expert in this field.

2. Create a plan.

Ideally, before you get the money. Once the money is here, emotions can take over.

I’ve seen the full range of emotions:

“I'm rich and I want to give everyone I’ve ever known money!”

“I'm rich and now I am terrified and I want to bury this money in my backyard.”

A plan helps to remove and calm the emotions.

You should know exactly where the money is going, why it’s going there, and for how long.

But don't be afraid to let the money sit for a bit.

If you don't have a plan, it may be better to park the money somewhere safe until you create a plan and emotions have subsided.

But please park the money somewhere where it is under FDIC insurance limits.

3. Invest based on liquidity needs.

A common strategy for liquidity events is "laddering".

A financial professional may create a fixed income ladder designed to create cash flow over different time periods.

This can be a complex strategy and should be customized to your needs.

What you need to know now is before you put this money anywhere, ask yourself:

"When will I need this money?"

You don't want to put it all in the stock market if you need money to live off for the next few years.

And you don't want it all sitting in a savings account if you want your money creating long-term growth for you.

Your investment plan should fit your cash flow needs.

4. Follow a financial plan.

This is where you start to implement your plan.

A financial plan should consider:

  • Long-term financial plans: retirement planning, future business ventures, real estate portfolio
  • Short and medium term financial plans: debt paydown plan, cash needs, new house, new car
  • Estate planning: will or trust, POA, medical directive
  • Flexibility: some cash should be accessible for spontaneous purchases or investment opportunities

But maybe the most important consideration in a financial plan that deals with a liquidity event?

Step 5 ↓

5. Tax planning

An entire book could be written on this subject and it still wouldn’t be enough, which is why I always use a great CPA who is experienced in this area to help with tax planning.

The year of your large liquidity event is going to also be a big year for taxes. There are methods to try to control this tax burden through:

  • Real estate investing.
  • Contributing to retirement accounts.
  • Charitable donations.
  • Business deductions.
  • And lots more.

Plan early and often here. A lot of these methods need to be done in the same year as the liquidity event to offset the tax impact.

6. Celebrate.

I've watched a lot of business owners work hard for over a decade while living frugally who were not able to turn on the spending muscle after they sold their business. Even though they wanted to.

Yes, be careful with your money, don’t blow through it. But with most of the people I’ve worked with this has not been an issue.

Instead, the issue has been not feeling comfortable rewarding themselves. Take time to appreciate your hard work and celebrate in any way you would like:

  • Vacation for the family.
  • New car.
  • Sabbatical.

Having a large sum of money is a nice problem to have. But as we've learned from lottery winners/athletes/business owners, having a lot of money does not automatically make you good with money.

Some of you may experience a lot of liquidity events, some may have 1 large liquidity event, and some of us may never experience a large influx of money.

In any scenario, a well-thought out plan is key.