How Do You Handle Large Amounts of Money?
Have you ever imagined what you would do if you were to come into a huge pile of sticky, wet, nasty cash? What if you win the lottery tomorrow? Are you ready? As prepared as you think you are, you aren’t. Blake over at YoungDough.com wrote in agreeing that he believes that a majority of big winners lose it all. Send us your ideas and we will post them in an update.
It is estimated that about 80% of lottery winners file bankruptcy in five years. That’s a HUGE number! It makes some sense though. I can imagine that most people get that much money and immediately go on a shopping spree. Everything on their list is immediately bought and that might not even put a huge dent in their coffers but it gets worse. They go and buy a massive house and quit their jobs.
That last part is where they probably made their first mistake.
One time purchases are probably not going break the bank but the house and the quitting of the job is a major hit to the cash flow. Houses insight regular expenses even if it is paid off. There are taxes and you have to pay more in utilities for larger homes. Then quitting your job? It would be better to change jobs to something more enjoyable. Sitting around at home would eventually get old I would think, but that might just be me. Still, if you want your juicy mound of cash to work for you, you have to take care of it and not constantly pull from it.
A fool and his money are soon parted.” – Unknown
So what should you do? With a large amount of cash, you will be able to better realize the benefits of compound interest. The other is the advantage of becoming debt free. Think about how much better you would sleep at night knowing that your financial future was secure, you had no debt, the home you currently live in is completely paid off, and the new job that might not make as much makes you happy and your day to day operational expenses are covered. All the while, you are making an outstanding amount in interest.
Where do you put it? My first reaction would be in index funds, money markets and CDs. These are probably the most secure over the long term and will give you a chance to be smart about what to do. It would also be more difficult to have it burn a whole in your pocket. Don’t put a huge chunk into one particular company. I think a quick scan of the news headlines these days makes that point for me.
But where do you go from here? After you get an attorney for legal and tax advice, you need to reassess your mind set for having this much money. Find methods to diversify and take things slow. There is no rush!
Take a look at these:
- Become a Millionaire in 30 Years with your Current Salary
- Five Common Money Mistakes to Avoid
- The 8 Worst Habits for Saving Money
- Analysis of “The 11 Principles”
Keep in mind that you shouldn’t spend it before you get it, and that earned money is much more appreciated than won money. I know thats not always the case, but you can see how people who win money could suddenly go over board. Long time wealthy people don’t wake up one day and have all their money spent. Unless they are CEOs of a large bank…nevermind. Bad example. But you get my drift.
Step 1: Get accounting advice.
Step 2: Get legal advice.
Step 3: Realize that you need advice and go back to Steps 1 & 2.
Step 4: Park the money in a safe interest bearing account.
Step 5: Comfortably eliminate debt. No need to do it all at once. But be a little aggressive.
Step 6: Make a list of your dream jobs and begin researching them on the side while you stay at your current job. Be conservative in the decision in leaving your job. Keep in mind however that depending on your experience you might find that managing a great deal of money is its own full time job. Some people would like this, some won’t. Don’t put it at risk by finding this out the wrong way.
Step 7: Ensure that the government doesn’t get a hold of your estate after you pass away. Even after the initial tax pay out to Uncle Sam, they can take more in the Death Tax unless you structure the finances a certain way. They pay people to sit around and think of these things. Thats not a joke, they really do.
Step 8: Do tons of research and LEARN what it takes from others who have done this before.
Step 9: Be positive.
Step 10: Be conservative.
The best possible scenario, in my opinion, is to just live off the interest from the interest of my saved money. You know who told me that? Frank.
Related articles you might be interested in:
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader or email.
Comments
I know! Isn’t it weird how we long to be out of debt and yet its so natural for everyone to be in debt?
If I won a large amount of money, I would take around 5% of it and complete some reckless spending…Buy a new sportscar, new vacation house, etc…Just so I can get that out of my system…The remainging 95% would be self managed.
I completely agree with the steps you outline. Another solid piece of advice would be to be wary of predators who make their living giving “financial advice” to naive people who happen to have money up the wazzoo.
It absolutely blows me away every time I see an ex-boxer or old TV star filing for bankruptcy. I guess a fool and his money normally are parted, even when he is showering in it…
I like Elias’ advice as well. Take 5% and be crazy. Depending on how fortunate your windfall is, that’s still a crap-ton of money! You can’t completely neglect the urge to splurge in this case; might as well embrace it to an extent.
Thanks a ton for the link man 
.
Deposit it in a high interest savings account and pack a suitcase. Rent a house/villa with your significant other (I’d prefer somewhere looking over an ocean) and with a great bottle of wine, daydream, think, discuss, make lists, revise lists etc about both your crazy dreams and your sensible ideas. Other than the trip, there are no purchases or investment decisions made for at least the month.
WHEN you win a lottery is as important as how much you win. A win at age 45 (my case) comes at a time in life when you’re already a well on the road to saving for your kids education, paying off the mortgage, and preparing to finance your retirement. A huge cash windfall just speeds it along and makes everything reeeeally comfortable a whole lot sooner. We’re absolutely not the type to run out and buy a Ferrari. We’d stay in the same house, replace our cars slightly sooner than the usual 10yrs we normally wait, and travel more. We’d just pay off the remainder of our mortgage now instead of in 8.5yrs and switch to seasonal or PT jobs we love but don’t “need”. We have no consumer debt or car loans (always buy used and pay cash). With no mortgage,we could live quite comfortably day to day on $50k/yr. (5% interest on $1M) and not even touch the principal. I’d hope to live off the interest only until about age 50 and then begin skimming a little more than the interest off every year to fund a lot more travel and help the kids fund their first home purchases (but not so much that they get a completely free ride). Ideally we’d spend all we wanted on travel, and still have a nice chunk left to leave to the kids to ease there lives. If we make it to 85-95, the kids will be in their 50’s and we could help them take early retirement too.
Nope, we wouldn’t go crazy, but it would sure make things easy. For me, winning a pile of cash would buy me the time to slow down and just enjoy what I already have.
i’d like to think i would be responsible with a large sum of money, but it’s hard to say since i’ve never been in that position. depending on the amount, i’d definitely get out of debt first and then work on investing options. that in and of itself would be a huge stress off my back. we can all dream…