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A Message from Kimberly Clouse, Financial Expert:
I have worked in the financial services industry for
nearly a decade in many capacities, most recently as
a financial advisor for individuals. Over the course
of my career, I have had the privilege of working with
a diverse range of people, from the single mother just
starting her own business to the dot.com billionaire.
Based upon my experiences, I have learned that the same
basic principles and lessons apply to a successful and
healthy financial life, whether you're starting out
or cashing out. These guiding principles include simplicity,
a long-term perspective, and above all, knowing that
you have control of your financial destiny, and all
the information you need is well within your reach.
Sudden Wealth Syndrome
Reactions of the Newly Rich
The unprecedented wealth creation of recent years has spawned
a new segment of the population--the suddenly wealthy. Unlike
those with inherited wealth, the newly rich do not have time
to prepare psychologically for their new status and the emotions
that often accompany the dollars. In my work as a financial
advisor, I frequently talked with newly minted millionaires
about their reaction to their wealth. Most wondered whether
or not their experience was "normal"; I usually assured them
that it was. I found that the suddenly wealthy typically experience
at least one of five reactions (aside from the predictable
shopping spree):
Shock and disbelief: Disbelief is often the response
of the entrepreneur who has just seen his or her company go
public or be acquired for a hefty premium. Prior to such a
liquidity event, the wealth is just on paper, a psychic asset
at best. Post liquidity event, however, the money becomes
accessible, after the applicable securities law and corporate
restrictions lapse. At this point, some entrepreneurs continue
to pretend that the money doesn't exist and try to maintain
as much of their pre-wealth lifestyle as possible. Certain
of my clients went so far as to pay themselves an allowance
similar to their pre-IPO salary, just to preserve a familiar
and predictable existence.
Guilt: Feelings of guilt and shame are more often
associated with inherited wealth, and "trust-fund babies"
frequently suffer from low self-esteem, since their money
is not the fruit of their own labor. However, the newly wealthy
can have feelings of guilt as well, though it is, in my experience,
a more uncommon response. Some believe that they don't deserve
the money they now have; that it's all a fluke; and that they
are imposters who will soon be discovered.
Purposelessness: For the suddenly rich, the key question
may be whether or not to work. Without work, however, the
question becomes what is the meaning of life? For those who
enjoy what they do, they move on to the next venture; after
all, in the New Economy--and Silicon Valley in particular--entrepreneurs
are only as good as the last cutting-edge technology they've
helped create. For those who rely on work for their self-definition,
the thought of leaving the workforce can be downright terrifying,
and they look for the next challenge immediately. Still others
choose to invest in new ventures, imparting their wisdom and
capital to younger entrepreneurs.
Cost of Success: Many use the freedom that tremendous
wealth can bring as an opportunity for self-reflection and
consideration of the cost of success. Most entrepreneurs have
sacrificed time with family and friends for the good of their
company and eventually come to realize that money comes and
goes, but time can never be recouped. The child who was an
infant when the company was founded is now attending kindergarten.
The parent who was an active retiree is now living in a nursing
home. Increasingly, entrepreneurs are giving back through
venture philanthropy, which involves applying venture capital
and for-profit business principles to non-profit organizations.
This way, they can tap their business acumen for the betterment
of society. In several cases, I helped suddenly wealthy individuals
establish foundations to support causes they cared about,
such as curing cancer or protecting the environment.
Increased Risk Appetite: The risk-taking characteristics
that frequently contribute to entrepreneurs' business success
often surface in their personal lives as well. When wealth
explodes, so does the appetite for risk, which is often manifested
in increasingly dangerous leisure activities, such as heli-skiing,
wind surfing, rock climbing, and hang gliding. Once a feeling
of invincibility sets in, the consequences can be disastrous
and life threatening. Moreover, the very rich can often find
themselves surrounded--and encouraged--by people whose flattery
and admiration heighten their sense of daring and insulate
them from reality.
My fundamental advice to suddenly wealthy clients as they
entered the ranks of the financial elite was to greet the
transition as they do other major life changes, such as attending
college, getting married, or moving to a new city: Don't underestimate
the magnitude of the opportunities and challenges but realize
that acclimatization can take a while. Be patient; be cautious;
seek sound advice; resist impulsive action; and create a plan
for the long term.
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