Inheriting a windfall may seem like a dream come true, but it can cause tremendous anxiety, guilt, and even leave you financially worse off.

Mike and Noel, both 34 and recently married, burned through a $171,000 inheritance in about a year. “We are super screwed,” Noel told Ramit Sethi on an episode of his podcast, I Will Teach You To Be Rich. (1)

Mike earns a six-figure salary and is supporting Noel while she finishes law school, but they have always struggled with money management, even before the inheritance.

After spending the inheritance, they have $30,000 in assets and another $30,000 in investments, and zero savings, but $244,000 in debt, leaving them with a negative net worth of roughly -$200,000.

Noel later regretted treating the money like “guilt-free spending,” while Mike felt anxious and stressed, leading to tension and fights over finances.

While they used some of the inheritance to pay off debt, they quickly accumulated more: Noel spent $30,000 on furniture, $10,000 on clothes and $10,000 on a trip to Mexico. Mike purchased a hair transplant and Pokémon cards, which he considered an “investment.”

While there are a lot of issues to unpack here — from Mike’s anxiety around money to Noel’s addiction issues — their situation demonstrates how quickly a windfall can disappear without clear priorities, budgeting and an investment plan, and underscores the risks of lifestyle creep and impulsive spending.

Through 2048, Gen X and millennials are projected to inherit $124 trillion in assets — what’s referred to as America’s Great Wealth Transfer — with Gen X expected to receive the largest share of assets over the next decade, according to the latest Cerulli Edge report. (2)

However, some heirs treat inheritances like regular income rather than long-term capital. Without a plan, even a six-figure windfall can quickly evaporate.

Part of the reason could be psychological. Noel, for example, inherited the money from her dad, with whom she had a difficult relationship. “He was an alcoholic and addict and was really not in my life, and so I had a lot of guilt” about inheriting his assets, she told Sethi.

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A Harris Poll report found that inheritances come with complex emotions: a third (33%) of younger recipients feel stress managing larger or more complex assets, and a similar share (34%) worry about mismanaging those assets. (3)

While most inheritors feel grateful and relieved by newfound financial security, one in five (20%) feel pressure, 18% feel anxiety, and 15% feel guilt. (3)

This phenomenon is sometimes called Sudden Wealth Syndrome (SWS), a psychological condition affecting people who suddenly acquire wealth — through an inheritance, lottery, legal settlement, or other windfall. Causes can include feeling disconnected from one’s previous life or an intense fear of losing it all.

These feelings can lead to decision paralysis or poor financial choices.

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A large inheritance can help you pay off debt and invest for the future, but it can be very tempting to go on a spending spree. That’s why having a plan in place — one tailored to your specific circumstances — can go a long way in helping you make your inheritance last.

FINRA recommends holding off on any big moves — like quitting your job or making a major purchase — for the first six to 12 months. (4) Consider this a cooling-off period.

During this time, place cash in a safe account, such as a savings account or certificate of deposit (CD). If the sum is large, spread it across multiple accounts to stay within federal insurance limits. (4)

Set aside money immediately for taxes on your windfall. If you don’t already have one, establish an emergency fund covering three to six months of income.

If you have high-interest debt — like credit cards or personal loans charging 20-25% interest — pay it off first, since it “gives you an immediate guaranteed return that’s almost impossible to beat through any investment strategy,” according to Sethi on his website. (5)

But you may want to hold off on paying back low-interest loans like mortgages, since Sethi says that money “might generate significantly better returns if invested in diversified index funds over time.” (5)

From there, consider your financial goals. Are you putting away enough for retirement? Buying a house? Reducing work hours or retiring early? Starting a business, going back to school, or traveling?

Also consider lifestyle inflation. For example, inheriting a windfall doesn’t necessarily justify buying a mansion or luxury car. Factor in ongoing costs such as property taxes, insurance and maintenance to ensure sustainability.

You may want to consider topping up your 401(k) and IRA, and then putting money aside for your goals. For short-term goals, like a wedding, a high-yield savings account, money market account or CDs means your money is more accessible. For longer-term goals, consider stocks, bonds or alternative assets.

But Sethi warns against getting too fancy with investments. “Boring index funds and target-date funds are perfect for most of your investment allocation” giving you broad market exposure without requiring you “to become a stock-picking expert overnight.” (5)

Sethi’s conscious spending plan recommends putting aside 50-60% for needs, 10% for investments, 5-10% for savings and another 20-35% for guilt-free spending. (5) This, too, can be applied to a windfall. So you can still have a bit of fun with your money — without going broke a year later.

While inheriting a windfall can be overwhelming — and friends and family may offer unsolicited advice — it may be wise to seek guidance from a registered financial advisor, insurance agent and tax professional, especially when the windfall is substantial.

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YouTube (1); Cerulli (2); The Harris Poll (3); FINRA (4); I Will Teach You to Be Rich (5).

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.