Preface: I previously posted this using my main account on WallStreetBets. However, since people in my life know my main account, I have decided to delete it in accordance to Part 1; Chapter 1: Don't tell anyone. That being said, I still wanted to help out as many of my friends here that I can, so I'm uploading this again on my alternative account. In the process, I have taken all of the feedback that I received in the first post, and have created the ultimate compilation of DD resources for your new financial life as a Millionaire. I hope this helps out my brothers and sisters here!
So, you did it. You did your due diligence, you did the math, you summoned your courage to press that 'Buy' button, and now those equities and options have granted you a title you only dreamed of having.
"Millionaire".
Congratulations! You beat the odds that so many before you have failed to overcome. You played the game, and came out on top. Your thoughts are racing as you realize all that you can do with this newfound wealth. Now it's time to buy that house you always dreamed of, or that car you always wanted to drive, right? And now I can go on that luxury vacation to that resort I always wanted to go to! But, slowly, there may be this other feeling that washes over you.
Fear.
Slowly, you feel a wrinkle form on your brain, as you begin to realize how big of a responsibility this truly is, and how unique of an opportunity this is. You know that you may only have this shot once, and don't want to screw it up. Well, if this community has shown us anything over these past 4 months or so, it's that knowledge is power! So fear not, my friends! For in the paragraphs ahead lie your survival guide for the next 6 months!
"What do you mean, a 'survival guide'?"
This guide will be broken into 3 parts. The first section contains life advice as for how to socially, and mentally handle these unprecedented funds. The second part does not contain financial advice, but rather the resources to do your own research, and figure out a financial plan that would benefit you the most. The reason being is that it would be irresponsible for me to tell you what to do with your money. Beyond that, every person here has a different story. Some folks may have a partner and 3 kids, while others my still be living at home. Instead, I would like to give you all the tools to build a successful life using these new funds. The third section goes over where to go from here now that you've built a solid foundation.
"Ok, I understand what's in this guide, but why now? Why not after a squeeze?"
Great question! I considered posting it after a squeeze on a particular stock, but I realized that some everyday folks have already won big on well placed call options. If I can give at least one person pause to reflect, and help someone avoid making a huge mistake with their windfall…that would be enough. I'm by no means an expert, I'm just trying to look out for the people here.
So, without further ado, let us begin.
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Part 1 – Social and Emotional Survival
Chapter 1
Protecting it from everyone else
DON'T TELL ANYBODY. If there is one thing you take away from this, let it be this. So let me repeat that…
DON'T.
TELL.
ANYONE.
This is going to be your most well kept secret in your life. At least in the beginning. You will probably feel the urge to tell your friends, and your family, but doing this WILL ruin your life. Why? Well, first, people are going to find it harder to relate to you. Snide remarks such as, “look at Moneybags over here”, “must be nice”, or “remember the little guy”, may weed their ways into the conversations people have with you. You’ll see your relationships slowly change as people no longer relate to some of the things going on in your life. (Not everyone in your life is going to be worried about finding a levy advisor that specializes in the wealthy!)
On top of that, they’re gonna smell money, and many of them may want a cut.
They're gonna say they need that new device, or they need that new car, or they want to start this unusual enterprise venture, or they need this or that. They'll bring up how far you go back. Suddenly, you'll see the very people who have been your friends, turn on you like vultures. They may think they have your best interests in mind, and they may not know the emotional and relationship damage they're causing, but they'll smell money, and they're gonna come asking.
By that point, you’ve lost. You’re stuck between a rock and a hard place. You may have to be the bad guy and say, “no”. And some of those relationships may quickly fall apart as you deny them. Or the alternative is that you're gonna bleed your money 'helping' everyone while they take advantage of you and indulge their overspending habits.
There's also the concern of your safety. People who are lottery winners are found to be much more likely to be a victim of kidnapping, blackmail and murder. That's not to say you can't live an upper middle class lifestyle, but be careful with how flashy and open you are with your earnings.
To put it differently, this isn't a question of who do you tell, because word spreads. Rather, this is a question of social survival. Do you want to maintain your relationship with your friends and family? Yes? Then keep it to yourself. Eventually, you may find people that you trust, and can let them in on the secret. But you can’t take back your words once you say them. Be very careful with who knows.
Money talks, but wealth whispers.
Chapter 2
Protecting it from costs
If you want this money to last more than 5 years, you're gonna want to treat it as if it wasn't there.
"Wait, what? Then why do I have this money if I'm not gonna use it?!" You will use it. Just not as a sum of cash. If you have $1.8 million after taxes, you are not going to go out and buy a $1 million dollar house and a $200,000 Lamborghini. You'll only have $600,000 left! And while this may sound like a lot, it won't go nearly as far as you might think. Instead, you might want to turn to FIRE, or financial freedom, Retire Early. There, you are going to use your newfound money as a source of earnings. I'll go over the details in Part 2; Chapter2, but for now, an easy equation for this is 4%. That's it. That's the equation. 4% of your net worth can be used yearly, while your money still sits in investments and accrues roughly 7% finance charge annually. This way you beat inflation, and you cover your costs.
So, to use our $1.8 million under the 4% rule, that's $72,000 you can spend annually, and in theory you will never run out of funds, while never working another day in your life if you don't want to. Or, if you enjoy what you're doing, you can add that to the equation as well. How you break it up is up to you, but you can very easily spend north of $100,000 a year, and still be in the green if you hold down a job.
Meanwhile, let's check in on our $600,000. That's $24,000 a year you can spend for the rest of your life if you wanted to retire today. That's uncomfortably close to the poverty line. You're a millionaire. You don't deserve that.
Chapter 3
Protecting it from yourself
Yes. Yourself. As quickly as you made your money, you can easily lose it in the best 2 weeks of your life. So right now, emotions are probably high. You're beyond excited, you are itching to do something crazy with your money, and probably want to buy something, since you can't tell anyone per Chapter 1. But I implore, please don't buy anything right now.
Yes, you read that right. Don't buy anything. If you need any proof on that, look up what happens to lottery winners. Roughly 35% of them go bankrupt within 10 years of winning! Rather, set the money aside for a while. You can determine this amount of time, but a good rule of thumb is 6 months. In those 6 months, it gives you plenty of time to calm yourself, collect your thoughts, and figure out an actual plan on how to wisely use that money. How you want to invest it, how much you want to use per year, and how much you owe in taxes. Yes. The dreaded, 't-word'. Taxes. You've gotta pay up. And during that planning process, you'll have to come to terms with what this money is going to do for your life.
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Part 2 – Economic Survival
Chapter 1
Taxes
Roughly 40% of earnings over $500K is going to go to the federal government. That's not even accounting for any state earnings taxes (which vary wildly from state to state). And before we continue, I will allow a moment for a collective "ouch" from everyone reading.
That's a lot. I won't deny that. But as much as it sucks, you've gotta pay up. Because if you don't, the IRS can very, very easily take ALL of it. 100%. And they will, leaving you behind with nothing but lawyer and court fees, and no money to pay them. So please, please, please, make sure you pay the taxes my friends!
With that said, since you are a millionaire, you have the resources to retain the services of a CPA who specializes in the wealthy and ultra-wealthy. And I would highly advise doing your research and getting the best one you can find, as otherwise you may be overpaying by the thousands! Also, in compliance with Chapter 1; Part 1, please do not go to a family friend, or even someone in your area. If you can travel (or in the case of COVID, WebEx/Zoom) to a CPA out of your area, even better! Find someone based on quality, not convenience!
Chapter 2
Debt
If you have any debt in your life, now would be the time to review that. Any high finance charge debt such as borrowing cards, car loans, personal loans, student loans, etc. I would advise paying off immediately. Otherwise, those finance charge rates will bleed you dry, and take away from your revenue, and your attempt to be financially independent.
Now, if you have a home loan, this would be at your discretion. Some people advise paying off the house with the rest of the debt if you have the available capital to do so. This way it removes the last payment from your life. However, the alternative school of thought is that your money is going to earn more money in an capital than it will save in the finance charge when you pay the house off immediately. This again will be at your discretion. If you're planning on proceeding with FIRE (more details in Chapter 3), my personal recommendation would be to pay off the home loan up front, so that you aren't putting a strain on your new earnings source.
Chapter 3
FIRE
FIRE, or financial freedom Retire Early is a movement that has been gaining traction as of late, with the goal of making retirees out of 20-40 year olds. As mentioned above, the equation is simple. You take your net worth, and figure out what is 4% of it. So if you have $2 million dollars, 4% of that is $80,000. That means that you can live off $80,000 a year for the rest of your life without changing a thing, and be financially independent.
Now, how exactly does this work? Well in the 90's, a man named Bill Bengen figured out that the worst case scenario for a rate of return from typical stock sector investments year-over-year was 7%. So that means in theory, you can retire on your earnings and never touch the principle. Now, you can adjust this number as you see fit depending on your returns or any other streams of earnings, however for people trying to retire in their 20's, I would advise staying conservative with the 4% since this money needs to last you a lifetime. The other 3% is there to build the principle and protect it from inflation, which increases by 2%-3% annually.
This would be the standard FIRE. However, there are 4 other types of FIRE:
- Lean FIRE – Living on less than you make, roughly $40,000 a year
- Fat FIRE – Living a retirement of luxury, roughly between $100,000-$120,000 (double the standard household earnings in your area)
- Barista FIRE – Using the same principles as above, but you are picking up a part time job or a gig job that you enjoy. This will supplement some of the money that you take out of your investments.
- Coast FIRE – This last version is similar to Barista FIRE, however you use the power of compound finance charge to become financially independent later. You continue to work now, while your investments grow in the background. You don't need to add another cent to retirement as they will grow in the markets, however you are not financially independent today.
Chapter 3
Investments
Before I proceed, this is once again, NOT financial advice. Now, with that disclaimer out of the way…
I believe the smartest thing you can do would be to invest in appreciating resources, rather than buy depreciating resources such as cars. These come in many forms (which I will cover below), but what ties them together is that they are all a source of earnings. Your money on it's own isn't generating additional money. But you are also in a unique position of not having to work for your money. It's time to make your money work for you.
Stock sector – One of the most common sources of passive earnings is the stock sector. For the sake of your financial future, I would not put most of your collection of investments into single equities. While I'm not saying avoid single equities all together, I wouldn't invest more than 10% of your net worth into them. Any more than that carries the hazard of severely crippling your retirement collection of investments. Boring ETF's, securities and mutual funds may be a safer play. I am obligated to advise you to do your research before making any decisions on what to invest in.
Real Estate – Another popular capital is Real Estate. This comes in may forms, from flipping houses, to becoming a real estate agent, or buying rental properties. The benefits to the real estate sector is that you are left with something. A hedge fund isn't able to come along and short your house into the ground. Your house is yours. If the stock sector crashes, or a firm goes under, you're at a loss. It's easier to ride out the waves with real estate. With it though, comes more work. You are now a landlord, and have to mange the properties, and find new tenants as the old ones move out. It's not as passive of an earnings as the Stock sector.
Businesses – "Small enterprise is the backbone of our economy." While it seems to be every politicians catchphrase, they're not wrong. Small businesses are extremely important to the success of our nation, and you now have the capital to make your own. If you have something that you're really passionate about, I would fully endorse you going out and either buying a enterprise, or building your own enterprise for your passion from the ground up! However, this is much, much more work than the passive investments of the stock sector.
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Part 3 – What Comes Next?
Chapter 1
Spending
Alright, so you've made it this far. Now, we're going to take all that we've learned, and form an action plan. First, the spending. Make sure you build a spending plan for your spending and track what leaves your accounts. Just because you're wealthy doesn't mean we can get sloppy! Remember, we're trying to keep you a millionaire! When it comes to spending, don't overextend yourself. If you want a life of financial freedom, you will need to discipline yourself and stay within your means. This money has to last a lifetime after all! I would also advise that any further day trading that you do comes out of the annual funds available for spending (as calculated by the 4% rule). This way, if you make a risky options play, or a stock flounders, it won't hurt you long term! And remember, hold less than 10% of your net worth in single equities!
Chapter 2
Building a cabinet
Now, if what I've said so far isn't resonating with you, and you would rather be walked through these major financial decisions, then I would advise assembling a committee that can help you through this. Whether you choose to rely on them for the short term as you get your feet wet, or the long term to ensure someone keeps you in check, will again be at your discretion. But before I proceed with my recommended positions for your financial committee, I will remind you that time is money. If you put the time in to learn the principles of personal finances, then it will save you a lot of money in the long term. That said, some people just want to set the money aside and forget about it, and that's ok too! For a fully staffed committee, I would recommend a investment advisor, a levy advisor/CPA, a real estate advisor (should you want to enter real estate), an attorney, and an coverage advisor.
Chapter 3
Giving
And now that you have a solid financial foundation to stand on, one that will be passed onto your kids, and possibly even your grandkids, we can begin to make the world a better place. You can now begin to give. Now, giving is a broad term in this sense. It can range anywhere from giving the valet a generous tip to park your shiny car, to donating $2500 to your local food economic organization just before Thanksgiving. But just like with spending, you want to make sure you don't overextend yourself. If you are a responsible steward with your money, you can ensure that you can help many more people for years to come. To do so, I would advise taking the money not out of your principle, but rather on your annually allotted funds.
Chapter 4
Sources for you to perform your own Due Diligence
In this chapter, I have included some good sources to begin your own due diligence. While I don't necessarily agree with everything that they all say, it's up to you to find what works best for you!
How to survive winning the lottery – Reddit – An extremely detailed Reddit post describing how to survive winning the lottery.
Graham Stephan – YouTube : Graham Stephan is a self-made millionaire who achieved financial freedom in his 20's. (Automod does not allow YouTube links, so you will need to search for this channel independently)
Dave Ramsey Show – YouTube : A religious millionaire who hosts a radio show revolving around teaching people how to get out of debt and take control of their personal finances to become (and stay) millionaires. (Automod does not allow YouTube links, so you will need to search for this channel independently)
https://investedwallet.com/types-of-fire-in-money management/ – A resource for a more detailed description of FIRE.
Windfall – r/personalfinance Wiki – Lots of good resources on advice for people who receive windfalls.
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So there you have it. A starter guide on how to survive your first few months as a new millionaire, written by someone who has never been a millionaire! But I have seen some people make some awful mistakes regarding money, and did my due diligence on what happens after someone gains a massive windfall. And I have a feeling that more than a handful of you might be seeing a windfall come your way in the near future…
To close, they say money can't buy you happiness, but I'm often reminded of the scene from Captain America, where Steve is told, "The serum amplifies everything that is inside. So, good becomes great. Bad becomes worse."
Money is only going to amplify how you want to live your life. If you're happy now, you'll be even happier. If you're snobby now, you'll become even snobbier. If you want to live generously, leaving anonymous gifts and donations, giving all you have away, you can do that. If you want to live egregiously expensive and live it up, over spending at every turn, you can also do that. But you will need to face the consequences of all those decisions.
And if you, in your nature, default to one of these paths, but don't want to, it will take all the more effort to avoid it than if you didn't have this money at all.
Oh who am I kidding. You're the apes on Wall Street! You will all be fine. Just be careful, my friends. As this is a fight that may last the rest of your life.