As Googleprepares to go public, many of its 2,000-plus employees are preparing to get rich via their stock options. According to a recent article in the San Francisco Chronicle, several hundred employees could end up with more than $1 million, with roughly a dozen clearing more than $20 million.
But getting rich suddenly, though it can be fun, can also be dangerous. It's not a new phenomenon, and lots of people in history have mismanaged windfalls, ending up with little to show for them. The Chronicle noted that these folks "aren't ready for the envious friends, or relatives expecting plane tickets to the next family reunion. Many haven't a clue about estate planning or the chilling, Byzantine tax codes that await them."
Most employees won't get rich on IPO day, as they'll still have to exercise options to buy and then will have to sell shares. Many likely have options that won't vest (be fully theirs) for a number of months or years. By that time, Google's stock price may be considerably higher -- or (gasp!) lower.
A key danger is spending what you don't have, according to some experts. Assuming that they'll be rich soon enough, many people start spending prematurely. Then things don't turn out as expected. The Chronicle offered the example of VA Linux [now VA Software (NASDAQ:LNUX)] engineer Brian Elliott Finley, whose options were worth $5.6 million the day after the company's IPO in 1999. "But the stock tanked before Finley could cash out, and a tax snafu wiped out most of his paltry gains. 'We basically had less than $1,000 to show after all that excitement,' he said."
Another perhaps-unexpected consequence is that with others viewing them as "rich," these folks end up wondering whether they should (or whether they're expected to) treat everyone each time they eat out. They may have some mixed feelings about their new circumstances, but they'll get little sympathy from friends and relatives who aren't in their situation.
The best piece of advice experts offer is: Wait. Don't rush to buy things or even invest the money. Take the time to get your bearings and learn about your options. But Finley offered a somewhat contrary recommendation, to "Exercise your options and sell your stock as soon as possible. Hold out for a higher price, he said, and the promise of instant wealth may prove empty."
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L ongtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
