Author Topic: Winning the proverbial lottery...now what?  (Read 3210 times)

course11

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Winning the proverbial lottery...now what?
« on: January 31, 2013, 01:24:47 PM »
I wasn't sure whether to post this here or in the Investing category - sorry if I picked the wrong one!

So here's the deal: I run my own business and have variable income each year. This year, I am poised to have the best revenue year I've ever had in my life -- one of my clients is going to be contracting my team for an intense project that could have us billing them 7 figures by the end of it. I'm very excited about the work.

Of course I'm also projecting out what my take-home income may be from this project (I hope to god I'm not jinxing myself by doing this), and it's kind of mind boggling. We will be able to pay off my student loan and a loan from my mother-in-law. We will be able to pay down our mortgage to get rid of PMI. We will be able to max out both of our 401k's, make a big contribution to our son's 529 plan, and top off our emergency fund (btw, should we be investing this fund? It's in an ING account right now).

We are also likely to have a sizeable chunk of money left over after doing all of that... and that's where I'm stuck. What do we do with it? Pay down more of our mortgage? Put even more into the 529? Invest in some non-retirement index funds? Something else?

We don't have a financial advisor even though we've talked about seeing one for the last year. Is now the right time to do it? Or might the Mustachian community be able to provide enough advice for us to run with? :)

chucklesmcgee

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Re: Winning the proverbial lottery...now what?
« Reply #1 on: January 31, 2013, 03:07:46 PM »
You really should invest whatever "emergency" fund you have. You'll have the stache, so it's not like some fluctuation in the stock market is going to leave you unprepared. Otherwise inflation will eat at your savings. Maybe it'll take two extra days to get the money, but it's not like any event short of a kidnapping really requires cash immediately.

Throw some cash into your IRA(s). Do a backdoor Roth contribution if it strikes your fancy. Get an HSA compatible plan and open an HSA. That's piddles, but still tax deductible piddles.

I'd probably knock down your mortgage too, as much as possible.

If our expect the gravy train to be continuing for sometime, you'll probably be best off going with taxable index funds after that.

I don't think a financial advisor is worth it until you've really got a substantial stache (probably 7 figures minimum) and need some direction or want to invest in some less-accessible investments (foreign currencies, hedge funds, angel investments, real estate, trust-establishment, etc).

course11

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Re: Winning the proverbial lottery...now what?
« Reply #2 on: January 31, 2013, 07:39:51 PM »
Thanks! Any recommendations for where to invest the emergency 'stach?

We have health insurance through my husband's employer and they don't offer an HSA option. We do take advantage of flex spending for medical and dependent care expenses.

Am I right that the max IRA contribution I can make is $5500 for 2013? Should my husband open an IRA so we can fund that as well? I'll have to research backdoor Roths.

JasonK

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Re: Winning the proverbial lottery...now what?
« Reply #3 on: February 01, 2013, 08:21:04 AM »
I'd definitely recommend putting a large piece of the extra dough (and most if not all of your emergency stache) in Vanguard index funds.  I've spent years reading investing books and such, and quite simply that's the best way to go in my opinion.  Fantastic company, extremely low expense ratios, everything is online (direct debit for your investments), and you can get your money debited to your bank account in a day or two if the need arises. 

Now the next question becomes of course, which funds?

My best advice would be to read the Gone Fishin' Portfolio by Alexander Green.  He's a former Wall Street insider who explains why you should avoid professional advisors and manage your investments yourself, why index funds (and Vanguard) are the way to go, and then he lays out a portfolio allocation to set and leave (ie go fishing afterwards).  It's a very good starting point for your investing, and you don't have to invest in all funds right away.  Start with one or two and add as you can.  You can also get the allocations on the website I believe, but I'd check the book out at the library and read it for your education.

Finally as a sidenote, Alexander Green has some other great books that are very Mustachian in nature, like Beyond Wealth.  Not an investing book, rather a series or articles speaking towards the better things in life (other than money). 

Happy investing~

Forcus

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Re: Winning the proverbial lottery...now what?
« Reply #4 on: February 01, 2013, 08:24:30 AM »
I don't know what type of business you are doing but I would advise having a "holdover" fund in case business (temporarily - months or several years) dries up. For example, MANY home builders around here went belly up during the recession. I surmise that this was in part because a lot of them paid very high salaries from the business and then went it went away they didn't have any buffer money. When the market came back, only the strong survived, and they had less competition to boot. Just a thought, because I know it is tempting to pay off all debt and put the rest away where you can't touch it.

course11

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Re: Winning the proverbial lottery...now what?
« Reply #5 on: February 01, 2013, 11:24:31 AM »
Forcus, good thought. No worries, though: I hold back 10% of fees for overhead, and given the size of the contract, that overhead alone would last me through quite a dry spell - like over a year's worth of expenses. Mine is a professional services company and I have no permanent staff; my overhead costs are quite low.

PFgal

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Re: Winning the proverbial lottery...now what?
« Reply #6 on: February 03, 2013, 10:19:24 AM »
I don't have any advice to offer, but I just wanted to say, CONGRATULATIONS! This sounds like an incredible opportunity. It also sounds like you're going to set yourself up very well for the future, by carefully planning what you do with this new-found income instead of using it to buy a bigger house, new cars, etc., like so many others would. Well done!
Writing an anthology about life with chronic illness. Contribute your story here: http://chronicillnesstruths.tumblr.com/aboutthebook

Contributing to my stache by making custom hats, scarves, gloves, and anything else crochet: http://yarncreationsbyjulie.tumblr.com/

clutchy

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Re: Winning the proverbial lottery...now what?
« Reply #7 on: February 04, 2013, 12:45:37 PM »
don't forget about your employees...

and don't count your cash till it's in your hands...

salmp01

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Re: Winning the proverbial lottery...now what?
« Reply #8 on: February 04, 2013, 01:17:52 PM »
Quote
Am I right that the max IRA contribution I can make is $5500 for 2013? Should my husband open an IRA so we can fund that as well? I'll have to research backdoor Roths.

If you’re self-employed you should be able to contribute up to 50k to a retirement plan.
 
http://www.irs.gov/Retirement-Plans/Retirement-Plans-for-Self-Employed-People

course11

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Re: Winning the proverbial lottery...now what?
« Reply #9 on: August 21, 2013, 02:16:23 PM »
I just wanted to update this thread to say that today I (finally) signed the contract for the humongous piece of client work that I started talking about back in February! It is a 7 figure contract and even after I pay out consultants and cover my overhead, my income this year will be about...oh...TEN TIMES my average annual income.

Very exciting, and all the more important that my husband and I get on the same page with how we will handle the windfall (see my other active thread...).

Mr Mark

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Re: Winning the proverbial lottery...now what?
« Reply #10 on: August 22, 2013, 11:22:18 AM »
Watch your exposure to a single client. If they experience any problems, they may delay or even stop paying, leaving you in a deeeeeeep cashflow hole and owing money to all those consultants.

Get a good accountant to track cashflow and exposure. They may be able to suggest ways to mitigate, via upfront payments and insurance.
Mr. Mark

course11

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Re: Winning the proverbial lottery...now what?
« Reply #11 on: August 22, 2013, 11:38:23 AM »
Thanks for the heads-up. We are lining up a financial advisor and will hedge against the risks you mention.

PFgal

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Re: Winning the proverbial lottery...now what?
« Reply #12 on: August 25, 2013, 08:56:30 PM »
Stepping away from the literal money part for a second, congratulations on the huge new job! I'm always very impressed when people find ways to take their careers up several levels at once, and you seem to have taken it up about 20 levels - great job! I hope it works out well for you!
Writing an anthology about life with chronic illness. Contribute your story here: http://chronicillnesstruths.tumblr.com/aboutthebook

Contributing to my stache by making custom hats, scarves, gloves, and anything else crochet: http://yarncreationsbyjulie.tumblr.com/

lhamo

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Re: Winning the proverbial lottery...now what?
« Reply #13 on: August 26, 2013, 03:33:46 AM »
Congratulations!  Sounds like you are very good at what you do.  Scaling up that fast can be a challenge, though.  Be careful not to over-promise and under-deliver.  Don't hesitate to bring people on to share the load -- you certainly have plenty of work to share, as well as a nice windfall. 

Sweet Betsy

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Re: Winning the proverbial lottery...now what?
« Reply #14 on: August 26, 2013, 12:33:23 PM »
Congratulations on your booming business.  I'd definitely recommend speaking with your accountant regarding your taxes for this year.  Make sure that you are prepared for the increase that you'll see in your income.  Some small business owners that I've run into seem shocked every single year that yes indeed they do have to pay taxes on their company's earnings.  You may not have that issue but I've seen it too many times to not bring it up.   Talk to him/her now that you have the contract signed and make time in mid December to once again touch base with him/her before the end of the year.  If there are any adjustments that you need to make you'll want to do it before January 1st. 

I love your idea of maxing out all your tax advantaged options.  Once you do that I personally recommend setting aside a bit of the money to do something really awesome with your family. I'm assuming that you'll be working longer hours...you will all need a reward to look forward to.  Then put the rest in taxable investments. 

wannabfrugal

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Re: Winning the proverbial lottery...now what?
« Reply #15 on: August 26, 2013, 04:26:09 PM »
Congratulations on your booming business.  I'd definitely recommend speaking with your accountant regarding your taxes for this year.  Make sure that you are prepared for the increase that you'll see in your income.  Some small business owners that I've run into seem shocked every single year that yes indeed they do have to pay taxes on their company's earnings.  You may not have that issue but I've seen it too many times to not bring it up.   Talk to him/her now that you have the contract signed and make time in mid December to once again touch base with him/her before the end of the year.  If there are any adjustments that you need to make you'll want to do it before January 1st. 

I love your idea of maxing out all your tax advantaged options.  Once you do that I personally recommend setting aside a bit of the money to do something really awesome with your family. I'm assuming that you'll be working longer hours...you will all need a reward to look forward to.  Then put the rest in taxable investments.

I can't second this enough.  I'm a CPA specializing in tax planning and cash flow maximization.  Engaging your CPA to plan for taxes as part of planning for the deal can save a LOT in taxes, sometimes without even changing the business terms of the deal.  A good CPA that specializes in this area can pay for themselves many times over.  I'd emphasize you want a CPA that thinks proactively and works on planning issues, not a CPA that just takes your financials and prepares a return.  You could also consider a tax attorney .

course11

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Re: Winning the proverbial lottery...now what?
« Reply #16 on: August 26, 2013, 05:28:07 PM »
Congratulations on your booming business.  I'd definitely recommend speaking with your accountant regarding your taxes for this year.  Make sure that you are prepared for the increase that you'll see in your income.  Some small business owners that I've run into seem shocked every single year that yes indeed they do have to pay taxes on their company's earnings.  You may not have that issue but I've seen it too many times to not bring it up.   Talk to him/her now that you have the contract signed and make time in mid December to once again touch base with him/her before the end of the year.  If there are any adjustments that you need to make you'll want to do it before January 1st. 

I love your idea of maxing out all your tax advantaged options.  Once you do that I personally recommend setting aside a bit of the money to do something really awesome with your family. I'm assuming that you'll be working longer hours...you will all need a reward to look forward to.  Then put the rest in taxable investments.

I can't second this enough.  I'm a CPA specializing in tax planning and cash flow maximization.  Engaging your CPA to plan for taxes as part of planning for the deal can save a LOT in taxes, sometimes without even changing the business terms of the deal.  A good CPA that specializes in this area can pay for themselves many times over.  I'd emphasize you want a CPA that thinks proactively and works on planning issues, not a CPA that just takes your financials and prepares a return.  You could also consider a tax attorney .

Thank you both for this advice. We are in the process of switching over from a CRAPTASTIC CPA who only prepared our returns (and did a horrible job, leaving us owing thousands of dollars each April) to one who is proactive in helping us maximize tax deductions and plan appropriately for the much bigger tax bill we will be paying this year.

I also like the idea of using some of the money to do something really fantastic. It may be that we give ourselves a decent pot of "fun money" for excursions -- we're actually relocating temporarily to the West Coast for this work, and are excited about exploring the region. :)