I thought I would post my story as a millionaire for a year. I think it might interest those on the post as it deals with some of the issues here already. Getting wealth vs. earning wealth. Become a Complete Fool
Well when I was 26 (back in 1996) I joined a mid-size software company for an engineering job. I was young, energetic and had all the right skills. I rose quickly as I did a good job and was a team player. Along the way I accumulated a fair amount of options. I spent a bunch along the way for good reasons (buying a house), replacing an old car etc. But I kept getting more because of good performance. Then around late 98 early 99 the stock market took off. My stock options suddenly were worth a lot. In the summer of 99 I was getting a bit nervous about the stock being as high as it was, so I sold all my options. I will never forget the day, I looked in my online account and I had $450,000 in cash!
Well, the good part of this story is that I sold at the right time:-)
The bad part... where did the 450k go? Oh some is still around, 14k in a college fund. We remodeled our kitchen (paid too much and should have used a home equity line of credit). I bought my wife a nice piece of jewelry that I have to pay a lot of insurance on. I bought myself a nice car that I later sold for half what I paid for it. I bought an expensive bike I never ride. We entertained friends in very high style. We paid a fortune in taxes. Some stock brokers came to town and talked me into buying stocks that went bankrupt.
So, almost all of it is gone now and there are only a few things we bought that I don't regret buying.
But seeing the easy money go away is not the bad part. It is what easy money does to your mind that is worse. It encourages...
* arrogance... you start looking down at your neighbors.
* laziness... I thought I was going to retire at 35. Why hustle anymore?
* false hope... This is a big problem where I work. Many people are sticking around in dead end jobs waiting for the next boom. I know smart people who have bought big houses on interest only, waiting for the stock price to go up so they can "afford" their houses.
* defeatism... Why work hard for money anymore, it will just evaporate?
I am fighting my way through these issues now. I think I have conquered arrogance. But, I am having a hard time getting motivated on the work front due to the other two.
My wife and I are living on a normal salary now (funny we are just as happy as we used to be, if not more!). We are so much less wasteful it is incredible. My good old 401k that I have been stashing cash into since I was 23 is doing well and I have a great family.
So, here is my advice to those who have a windfall to avoid what happened to me.
1. Take 10% and buy yourself/family something you always wanted but has limited recurring expenses! Vacations are great. Expensive cars, not so good (taxes, repairs, etc can kill you).
2. Take the rest and stick it in CD's for a year. Hide it, get away from it. RUN FROM IT!!! Every year take out 20% of the remainder, spend 5% on exactly what you want, that true luxury that makes you feel good. Invest the rest.
3. Why not invest it all immediately? Well, 1st you may not know how to invest. 2nd, if like me, you invest during the boom, you get killed during the bust.
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I thought I would post my story as a millionaire for a year. I think it might interest those on the post as it deals with some of the issues here already. Getting wealth vs. earning wealth.
Become a Complete Fool