Everybody loves Sushil Kumar, the winner of Rs 5 crore in the reality show Kaun Banega Crorepati. In fact, many would love to be in the shoes of the 27-year-old computer operator and tutor from Bihar with a monthly salary of Rs 6,000 now. Who wouldn’t like a 50-year vacation in Goa, right?
Far from the media glare and reality shows, there are, in fact, many Kumars who find themselves rich overnight. The money may come from winning a lottery or from the sale of an ancestral property, which was under litigation for decades. Or the way to riches could be equally worthy of a reality show: unexpected inheritance from an uncle who disappeared 50 years ago or an old box full of forgotten stocks that is worth crores today.
Or it could be boring, like stock options encashed or an out-of-turn bonus. Now the big question: do all these fortunate souls walk into the Goa sunset, holding their partner’s hand and then live happily ever after? Very unlikely, if you would go by umpteen number of stories doing the rounds (many of them would be product of pure envy) about people who in no time return to their humble origins.
Sure, we don’t have any statistics to support these apocryphal stories. However, if you google for stories of jackpot winners turning bankrupt, you would figure out that such stories also make it to reality shows abroad. Closer home, you can google for sob stories of yesteryear stars who didn’t have a roof over their heads in their old age.
Some studies abroad show that when a person with inadequate education and money managing skill begets a huge amount, the chances of mismanaging the money (and reduced to poverty again) are significant. Just imagine that you got a huge (let your imagination run wild) sum, and then ask yourself what you would do with it.
In a matter of seconds, you would have repaid your loans, vacationed in Switzerland, bought a place next to Shahrukh Khan’s at Bandstand in Bandra, a posh Mumbai suburbs. Crazy, right? Well, that is the trouble with huge amounts. And it always need not be in crores. For a regular whitecollar guy, even an unexpectedRs 10 lakh can be difficult to manage. That’s why it is essential to learn a few tricks to preserve, and then grow, such sudden wealth.
BE AN INVISIBLE MAN
As a child, you would have dreamed about becoming invisible. Well, it is your turn to put that into practice. The moment you and the money becomes the topic of conversation in your circles, do a disappearing act. This will save you two troubles: one, you don’t have to deal with well-wishers bombarding you with advice and near and dear ones bothering you with sob stories to pocket a bit of your fortune. Two, you will get some breathing space to think.
“Keep quiet and only tell your close relatives or confidants about it. Keep a low profile till you actually get the money in your hands,” says K Ramalingam, director and chief financial planner, Holistic Investment Planners. If the money is huge, it could be a life-altering situation for you. You may need a new address, wardrobe, cars and so on. Take a deep breath and wait for a few months (some experts advocate years) before taking any major decisions.
“Wealth brings with it a lot of emotional change and one needs to have a waiting period before deciding on what to do with the money. This may take as much as three to six months, depending on the individual” says Partha Iyengar, founder, Accretus Wealth Solutions. An investment tip for safekeeping the money in the interim: tuck it away safely in a fixed deposit or a liquid mutual fund.
KEEP TAXES, LEGAL ANGLE IN MIND
When a jackpot comes your way you need to consider the tax angle and any legal liabilities. So, if you win Rs 1 crore in a lottery, and have to pay a 30% tax, you are left with only Rs 70 lakh. Therefore, make plans only for Rs 70 lakh. If it’s a case of inheritance like real estate, chances of a dispute are likely. So be prepared for it, too. “There could be counter claims which you would not be aware of, or someone may demand his/her share. You would do well to make provision for such claims,” says Partha Iyengar.
CONTROL YOUR SPENDING
A windfall is usually followed by a spending spree. Think of what you did with your huge bonus last year and you will get some ideas. The problem could be acute in the case of jackpots and lotteries. “They would end up buying fancy cars and staying in expensive hotels,” says S Shankar. Gambling, greedy relatives and friends, shady wealth managers... the potential troubles could be endless. “Take time to think before you act. Do not merely splurge this money, but think of protecting this money and growing it over the long term,” says Shankar S, chief financial planner, Credo Capital.
There is a tendency to treat such windfalls lightly than say, one’s salary or bonus. People usually treat inordinately large sums as free money and are not careful with it. Experts call this mental accounting. “Many people tend to mentally account for sudden money in a different way,” says S Shankar. Needless to say, whether it is from your salary, investment or lottery, money is money. It is worth the same, and it should be treated the same.
SEEK HELP OF MONEY MANAGER
If you are intimidated by the amount, it is better to find a professional to handle the money for you. Sure, there will be no dearth of relatives and friends willing to give you their advice. Besides your bank, brokers and advisors would also chase you. “You will be flooded with opinions and choices. It is necessary to hire an advisor, who you acts in your interest”, says K Ramalingam. However, these professionals should picked up very carefully because most of them don’t care beyond their commissions and fee. One helpful tip: don’t opt for anything you have problem understanding. Stick to simple things like fixed deposits, bonds, mutual funds and so on.
DON’T TAKE UNNECESSARY RISK
A huge kitty often makes people reckless. Many suddenly want to quit regular jobs and set up businesses. Others want to take a long sabbatical. Sure, you can do all these things, but wait a bit before the entire thing really sinks in. “Do not quit your job in haste. You may be very wealthy now, but you will need something to keep you busy and keep you from spending all of the money”, says K Ramalingam, Director and Chief Financial Planner, Holistic Financial Planners.
Far from the media glare and reality shows, there are, in fact, many Kumars who find themselves rich overnight. The money may come from winning a lottery or from the sale of an ancestral property, which was under litigation for decades. Or the way to riches could be equally worthy of a reality show: unexpected inheritance from an uncle who disappeared 50 years ago or an old box full of forgotten stocks that is worth crores today.
Or it could be boring, like stock options encashed or an out-of-turn bonus. Now the big question: do all these fortunate souls walk into the Goa sunset, holding their partner’s hand and then live happily ever after? Very unlikely, if you would go by umpteen number of stories doing the rounds (many of them would be product of pure envy) about people who in no time return to their humble origins.
Sure, we don’t have any statistics to support these apocryphal stories. However, if you google for stories of jackpot winners turning bankrupt, you would figure out that such stories also make it to reality shows abroad. Closer home, you can google for sob stories of yesteryear stars who didn’t have a roof over their heads in their old age.
Some studies abroad show that when a person with inadequate education and money managing skill begets a huge amount, the chances of mismanaging the money (and reduced to poverty again) are significant. Just imagine that you got a huge (let your imagination run wild) sum, and then ask yourself what you would do with it.
In a matter of seconds, you would have repaid your loans, vacationed in Switzerland, bought a place next to Shahrukh Khan’s at Bandstand in Bandra, a posh Mumbai suburbs. Crazy, right? Well, that is the trouble with huge amounts. And it always need not be in crores. For a regular whitecollar guy, even an unexpectedRs 10 lakh can be difficult to manage. That’s why it is essential to learn a few tricks to preserve, and then grow, such sudden wealth.
BE AN INVISIBLE MAN
As a child, you would have dreamed about becoming invisible. Well, it is your turn to put that into practice. The moment you and the money becomes the topic of conversation in your circles, do a disappearing act. This will save you two troubles: one, you don’t have to deal with well-wishers bombarding you with advice and near and dear ones bothering you with sob stories to pocket a bit of your fortune. Two, you will get some breathing space to think.
“Keep quiet and only tell your close relatives or confidants about it. Keep a low profile till you actually get the money in your hands,” says K Ramalingam, director and chief financial planner, Holistic Investment Planners. If the money is huge, it could be a life-altering situation for you. You may need a new address, wardrobe, cars and so on. Take a deep breath and wait for a few months (some experts advocate years) before taking any major decisions.
“Wealth brings with it a lot of emotional change and one needs to have a waiting period before deciding on what to do with the money. This may take as much as three to six months, depending on the individual” says Partha Iyengar, founder, Accretus Wealth Solutions. An investment tip for safekeeping the money in the interim: tuck it away safely in a fixed deposit or a liquid mutual fund.
KEEP TAXES, LEGAL ANGLE IN MIND
When a jackpot comes your way you need to consider the tax angle and any legal liabilities. So, if you win Rs 1 crore in a lottery, and have to pay a 30% tax, you are left with only Rs 70 lakh. Therefore, make plans only for Rs 70 lakh. If it’s a case of inheritance like real estate, chances of a dispute are likely. So be prepared for it, too. “There could be counter claims which you would not be aware of, or someone may demand his/her share. You would do well to make provision for such claims,” says Partha Iyengar.
CONTROL YOUR SPENDING
A windfall is usually followed by a spending spree. Think of what you did with your huge bonus last year and you will get some ideas. The problem could be acute in the case of jackpots and lotteries. “They would end up buying fancy cars and staying in expensive hotels,” says S Shankar. Gambling, greedy relatives and friends, shady wealth managers... the potential troubles could be endless. “Take time to think before you act. Do not merely splurge this money, but think of protecting this money and growing it over the long term,” says Shankar S, chief financial planner, Credo Capital.
There is a tendency to treat such windfalls lightly than say, one’s salary or bonus. People usually treat inordinately large sums as free money and are not careful with it. Experts call this mental accounting. “Many people tend to mentally account for sudden money in a different way,” says S Shankar. Needless to say, whether it is from your salary, investment or lottery, money is money. It is worth the same, and it should be treated the same.
SEEK HELP OF MONEY MANAGER
If you are intimidated by the amount, it is better to find a professional to handle the money for you. Sure, there will be no dearth of relatives and friends willing to give you their advice. Besides your bank, brokers and advisors would also chase you. “You will be flooded with opinions and choices. It is necessary to hire an advisor, who you acts in your interest”, says K Ramalingam. However, these professionals should picked up very carefully because most of them don’t care beyond their commissions and fee. One helpful tip: don’t opt for anything you have problem understanding. Stick to simple things like fixed deposits, bonds, mutual funds and so on.
DON’T TAKE UNNECESSARY RISK
A huge kitty often makes people reckless. Many suddenly want to quit regular jobs and set up businesses. Others want to take a long sabbatical. Sure, you can do all these things, but wait a bit before the entire thing really sinks in. “Do not quit your job in haste. You may be very wealthy now, but you will need something to keep you busy and keep you from spending all of the money”, says K Ramalingam, Director and Chief Financial Planner, Holistic Financial Planners.
(Your legal guide on estate planning, inheritance, will and more.)
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(Your legal guide on estate planning, inheritance, will and more.)
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