The windfall of great riches can, if mismanaged, make things worse, not better, for the recipients.
Michael Mandelbaum
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You spent an entire life and career working towards your musical goals and living a certain lifestyle. Then, in a blink of an eye, you experience a financial windfall. The possibilities are endless.
Feelings start to arise.
Joy, pride, guilt, grief, fear, overwhelm, etc.
Perhaps all at once?
Now comes the most difficult part. The decision…
Examples of a financial windfall
There a many ways to experience sudden wealth whether expected or not.
- Earning an advance for your next record
- Sale of your music catalog
- Large donation from a patron
- Artistic fame over a short duration (<5 years)
- Successful album release
- Winning a talent competition
- Sync placement in a popular television show or film
- Surge in streaming income after a successful performance
- Inheritance from death of a family member
- Winning the lottery
- Large return on an investment
The amount may vary, but the impact remains significant. Your response to life-changing moments like these are crucial to your long-term well being.
The first step
The very first thing to do after experiencing a financial windfall is…
Nothing.
Seriously. Nothing at all.
You will experience unique feelings that start to compound. You need time to adjust to your “new normal” and making decisions during the “transition” may be devastating when executed in the wrong state of mind.
Feelings and finances are like oil and water. They don’t mix. Ever. In fact, our emotions typically guide us to make the exact opposite of a prudent financial decision. This is called the behavior gap.
Take a breath.
Call a family member or friend.
Finish your day.
Then go to sleep (if you can).
Now what?
Your “new normal” may take awhile, but in the meantime there may be a few requirements that need attention before making long-term decisions about your sudden wealth.
For example:
- Deciding where to temporarily hold the money
- Paying taxes the year of a windfall
- Making inherited IRA required minimum distributions by year end
- Thanking those who helped along the way
It is wise to consult a professional attorney, accountant, and financial planner to help with the immediate and eventual long-term decisions. These professionals will not only help navigate the technical areas, but guide you through the emotional journey.
Decision time
Now feelings have settled and you are ready to make prudent financial decisions. Here are a few options to consider:
- Pay off high interest debt
- Build your emergency fund
- Reinvest in your music
- Purchase a home
- Invest for the future
- Donate to charity
- Create a trust
- Celebrate with a small portion (<10%)
- Reasonable gifts to family, friends, etc.
Having a plan in advance helps drastically as you will have already made these decisions in a calm and logical state of mind before experiencing this financial and emotional whirlwind.
The most critical decision
It is incredibly important to maintain your current lifestyle. Lifestyle creep is when spending increases as income rises which is especially dangerous for musicians with sporadic cash flow.
Plenty of statistics show lottery winners, professional athletes, etc. find themselves poorer than when they first started. Treat sudden wealth as a once-in-a-lifetime opportunity and not a reoccurring or long-lasting event.
Other ways to squander your sudden wealth:
- Spending it all at once
- Buying depreciating assets
- Purchasing homes, cars, and luxury items for family and friends
- Ignoring the tax implications
- Succumbing to lifestyle creep
- Doubling down (gambling)
Conclusion
As amazing as a financial windfall may be to your music career and life, it can be equally if not more stressful and demanding on your physical, mental and financial health.
Take care to stay present, understand yourself, and work with trusted professionals to help make wise decisions.
Keep Thriving,
Spenser
