Author Topic: How should I plan my life around a windfall?  (Read 6378 times)

streetride

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How should I plan my life around a windfall?
« on: June 04, 2017, 02:26:04 AM »
Long story short I threw my life savings of about $14k at a crytpo currency called ethreum at about $7. Well I cashed out about $200k the other day. These will be treated as short term capital gains considering I only held the asset for about 9 months so I need to set aside money for taxes.

Im not really a MMM reader, but I do understand the concept of saving more than spending. Im 23 years old though so I still have a lot to figure out regarding my finances, and life in general so im needing some help coming up with a plan. I can see some angles from where im at, but im sure there are more angles for someone thats on the outside looking in.

I have no education other than some technical school for welding, and im a few classes away from an associates degree. The area I live in, is a very low COL area, and im stuck in a dead end job where advancement would be counterproductive. I am pretty frugal, and always have been, but I think I could cut back in some areas. I make roughly $2,500 a month in wages but put around $1,750 of that into savings. No girlfriend or kids. No debt, and a paid off 2011 corolla I bought this year with 50k miles (plan to drive it for a long time, and I do my own repairs.

I dont know what I should do going forward. I have $205k cash, about $30k wrapped up in another investment, and absolutely no retirement accounts. I have not contributed to an IRA or my companies crappy 401k even though they offer some free money.

Im currently churning through credit cards, and trying to get into tradelines and looking for other ways to increase my income. I could probably reduce some of my spending by purchasing a flip property closer to work, and renting out some of the rooms, but with my current living situation, me and my older brother are taking the place of my moms old tenants and providing her a little bit of income while looking after her property.

There are probably a million things I should be doing right now, but I cant piece it all together. I haven't been speaking to friends about this amount of money, and im still living the exact same lifestyle I had before so im not going to go out and do something stupid, and squander the new money.

What should I be doing in this situation?

11ducks

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Re: How should I plan my life around a windfall?
« Reply #1 on: June 04, 2017, 03:36:59 AM »
Id put it in either a term deposit or high interest account for 3-6 months. Give yourself time to make the best decision you can, whether that be relocating, studying, switching jobs, investing, buying a house or something else entirely.

streetride

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Re: How should I plan my life around a windfall?
« Reply #2 on: June 04, 2017, 03:55:38 AM »
Thanks for the advice. The high term deposits had much better rates than the high yield. Are these accounts pretty liquid, and would I maybe be better off having a diversified portfolio with index funds and bonds?

protostache

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Re: How should I plan my life around a windfall?
« Reply #3 on: June 04, 2017, 04:16:36 AM »
Reddit's Personal finance subreddit has a good wiki article named How to Deal with a Windfall.

MayDay

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Re: How should I plan my life around a windfall?
« Reply #4 on: June 04, 2017, 04:46:50 AM »
I'd start by putting the 2017 max in an IRA (not sure if cap gains will disqualify you for a Roth?).

Then I'd take some time to figure out if you want to use it for college/career training of some kind, or a move to an area with more job opportunities.

You might be just as well off though, to put it in the market and let it increase in value while you stay in your current job and living situation, if you are happy there.

The biggest thing is not to touch it for more risky investments! Limit your risky investments to the amount you can save from your salary and don't touch this windfall!

FIREby35

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Re: How should I plan my life around a windfall?
« Reply #5 on: June 04, 2017, 07:37:30 AM »
Well, you are in a great position. Good for you!

What you need to do now is walk away from these types of investments while you are ahead. Don't be offended, but please accept that you got lucky and the investment returns you achieved may never happen again in your lifetime no matter how great the next investment looks. The only wise move for you right now is to walk away from individual stock investments while you are ahead.

You are 23 years old, you have a lot of cash and no debt. You should finish your classes, get your welding degree then go on some sort of six month vacation. I'd go to a beach in Mexico. You can go anywhere. While you are there, your job is to read as much as possible about finances. Not crazy stuff about how to make individual stock picks. You need to read MMM, Jim Collins, Bogleheads, A Random Walk down Wall-street, biographies on Warren Buffet. If you take six months to earnestly pursue the knowledge you need without letting your ego cloud your vision, you will find the answers you seek. Your financial life will be charmed. You'll have freedom and liberty 99% of humanity can't imagine. You have an amazing opportunity for future prosperity.

You can get these books for free from your local library. If you don't like to read, you can get them for 16.99 a month on audible.com and listen to them while you lift weights, walk on the beach, etcetera. You can afford the subscription for six months.

If you return to the individual stock investment game, you will ultimately lose all the gains you have to your great sorrow. If you don't think so, you'll be disabused over time. It's not an insult, its a lesson many "old people" have learned.

Good luck. You have "high cotton" problems.

PS The vacation should cost you less than 15k. Travel like the poor 23 year old you were a month ago.
« Last Edit: June 04, 2017, 07:56:12 AM by FIREby35 »

BTDretire

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Re: How should I plan my life around a windfall?
« Reply #6 on: June 04, 2017, 07:39:46 AM »
My biggest concern is that you will find another investment gamble
that you think will pay off big and lose what you have.
 At 23 this may be a bad life lesson for you, don't let it be.
 I had the opposite lesson when a little older than you,
 I was sold a stock, when it went down the broker said,
"it's an even better deal now" so I doubled up.
The company went bankrupt and I lost it all.
 You have a great start, take advantage of your 401k,
put money in a Roth or standard IRA, whichever looks better.
 I'm not sure if the the deduction is worth it for a standard IRA.
But you need to check.
 I'm not sure what the tradelines is all about, you don't want
to create debt unless it is to leverage an investment (a property)
 Many of us can only wish we started with $150,000+ at 23.
 Vanguard is your friend.

Rosy

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Re: How should I plan my life around a windfall?
« Reply #7 on: June 04, 2017, 08:53:12 AM »
First off - congrats!!!
OK, here is my totally unqualified advice from an internet stranger: Yes, to those who are concerned that you may now go on to seek more individual opportunities and lose all of your money.
Then again, you wouldn't be here asking if you were that foolish - btw, congrats on your lifestyle, just remember to have a bit of fun along the way too. You never know what tomorrow brings.

I'd take 10% of your windfall money to continue doing whatever it is that you are doing, you may have a knack for it, explore. Take your time looking for the next opportunity. Just know, this may have been "the once in a lifetime" success, but hey, there are always opportunities, some of them may pay out less, but it all adds up over a lifetime.
Invest and stash the remaining 90% of your windfall.

Keep it simple, Vanguard and CDs and MM.

Definitely finish your degree and think hard about whether you want to move somewhere else with real job opportunities. Welding and an associate degree opens up a world of possibilities. Maybe get a bit more job and life experience. You may find that you are more suited for your own business, you do not seem to be risk averse, which can be a great advantage in life.

401K - really?, you are turning down free money matches?, unless your 401K has only losing stock/funds or zero percent CDs, re-consider investing up to their match.
IRA - definitely, pick the one that works for you.

Tradelines - consider the risk (which for me means no Chase cards - they are too quick to pull the trigger and shut down all your accounts).

... and something I have learned over my lifetime - always act according to your gut feelings and stay true to yourself and your set of values! 
GOOD LUCK!

CareCPA

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Re: How should I plan my life around a windfall?
« Reply #8 on: June 04, 2017, 09:00:21 AM »
You should do what that guy on the other forum said and find a good accountant ;)

Rosy

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Re: How should I plan my life around a windfall?
« Reply #9 on: June 04, 2017, 09:10:59 AM »
You should do what that guy on the other forum said and find a good accountant ;)

+1

surfhb

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Re: How should I plan my life around a windfall?
« Reply #10 on: June 04, 2017, 09:45:21 AM »
You got lucky.   Plain and simple.

Odd are you won't next time.

I suggest you change your attitude on investing and hope your new found luck didn't turn into an uncontrollable gambling habit.   I'm serious


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streetride

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Re: How should I plan my life around a windfall?
« Reply #11 on: June 04, 2017, 09:51:23 PM »
Wow thanks for all the advice everyone! I am very risk averse so im not going to keep chasing huge returns and gamble it all away.

Looks like I will be maxing out some of these retirement accounts, and take this slow and steady.

Heroes821

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Re: How should I plan my life around a windfall?
« Reply #12 on: June 05, 2017, 09:42:45 AM »
I would highly recommend reading up on some MMM and Jlcollinsnh etc before making decisions with this money.  Since at a minimum you have a buffer for this year and you know taxes are gonna hit you hard, I would cap that pre-tax 401k for 18,000 this year. Even if you have a crappy 401k at work, post the options in it here and we can help you make choices, BUT free matching money plus lowering your taxable income by $18,000 will be huge with a taxable windfall as big as you have right now.

acepedro45

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Re: How should I plan my life around a windfall?
« Reply #13 on: June 05, 2017, 10:58:54 AM »
Important question:

To what degree do you attribute your fabulous score to special foresight and what part comes from dumb luck? Reading between the lines of your post, I sense you believe it was mostly luck. There's some hate in here for the humble OP that seems undeserved to me.

Quote
I haven't been speaking to friends about this amount of money, and im still living the exact same lifestyle I had before so im not going to go out and do something stupid, and squander the new money.

Absolutely great move. OP, I experienced a similar-sized windfall at a similar age through the magic of an internet scheme (think tradelines and the like). By moving slowly, learning about my options on my own, and resisting the urge to spend all my money on hookers and blow, I was able to put together a stash that's helped me do basically whatever I want in life.

I would continue to keep a low profile. Meanwhile, read, read, read here and elsewhere to come up with plans to invest your money and change your life situation to the one you dream about. Do not let the urgency of your money "sitting idle" prompt you to do anything you're not ready to do.

Accountant. I disagree here. No accountant is going to transform $186k of ST Capital Gains into anything else. Cough up the taxes - BUT - start reading now on all the tax and personal finance strategies you can employ over the next couple years. After I made my big score, I had a few years of low wages, so it was prime time to stuff a Roth IRA to the gills each year. Also, maxing your 401k this year is an easy way to shelter some of that windfall income from high tax rates.

I also like your perspective that you have a lot to learn instead of the "I just made funny money, what can any of you people possibly teach me?" attitude that would be all too easy to slip into.

Congratulations and good luck!

FIREby35

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Re: How should I plan my life around a windfall?
« Reply #14 on: June 05, 2017, 04:17:08 PM »
No hate, btw.

A healthy dose of skepticism that a 23 year old is going to be able to handle this windfall? Sure.

But, I agree OP left plenty of clues they might be up to the task. Hopefully that part of OP's nature wins out.

ysette9

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Re: How should I plan my life around a windfall?
« Reply #15 on: June 05, 2017, 05:07:35 PM »
What an exciting position to be in! I'm really curious how things turn out for you.

I second the sentiments of others: you got lucky gambling. Stop gambling. :)

Bogleheads wiki also has good advice on handling a windfall. Basically the advice to sit tight and do a lot of self education is spot on. I'd add in that you should also do a lot of soul searching on what you really want in life. This is your opportunity to put yourself on that path, whatever it may be. Good luck and keep us posted.

talltexan

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Re: How should I plan my life around a windfall?
« Reply #16 on: June 06, 2017, 07:52:11 AM »
I'm wondering why you cashed out now instead of waiting for it to go up to $300,000.

(or perhaps you left a little bit in ethereum?)

texastumbleweed

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Re: How should I plan my life around a windfall?
« Reply #17 on: June 06, 2017, 08:09:13 AM »
Please please please take the money and run.  This is super important.  I made but more importantly lost a lot of money with seemingly fun trades.  That kind of money is such a big step.  Just put it away safely, Roth IRA and etf funds like IVV.  You will thank yourself later for not blowing this money thinking you can make more.  I'm super serious!! It is easy to get back into.  Don't! 

robartsd

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Re: How should I plan my life around a windfall?
« Reply #18 on: June 06, 2017, 09:53:34 AM »
Max all tax-deferred accounts to minimize realized income (buy stocks using low-cost index funds in those accounts). Don't worry about how crappy the 401(k) is, you'll roll the money into your IRA as soon as you leave the dead end job. Put enough in a high-yield savings account to cover taxes (25-30% of gains) and any other funds you expect to spend in the next year or so (house down payment, relocation fund, first year of education expense). Any remainder can be invested in a taxable account with a balanced mix of stocks (60-70%) and bonds (40-30%) if you're planning on using these funds in the near term (< 5 years) or a heavy stock allocation if you plan to save the funds for retirement.

Pootie22

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Re: How should I plan my life around a windfall?
« Reply #19 on: June 06, 2017, 11:36:56 AM »
You said you "cashed" out only $200k, are you still holding a large amount of money in Ethereum? At current prices of $256 your 14K should be about $512,000 even at $150 (price from 2-3 weeks ago) you should have cashed out about $300k

Just curious, I'm certainly bummed I missed that one! But congrats to you sir!

shotgunwilly

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Re: How should I plan my life around a windfall?
« Reply #20 on: June 06, 2017, 11:38:20 AM »
He bought $14,000 worth at $7 each, which means he had approx 2000.  If he cashed out at $200 and made approx $200k, then he cashed out half. 

I personally think this is a very wise move. Don't be tempted to put the $200,000 back into crypto.  Invest it in some more conservative index funds.  But keeping the other half in ethereum is a good play IMO.  It still has the potential to grow exponentially.  You're playing with house money at this point.


FLBiker

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Re: How should I plan my life around a windfall?
« Reply #21 on: June 06, 2017, 12:09:57 PM »
Set aside what you need for an emergency fund and invest the rest in vanguard index funds.  And use tax sheltered stuff (ie IRA, 401K) when you can.

You could also keep aside money for a downpayment, but I wouldn't buy a house if I were you (ie 23, not necessarily tied to a place / job).

It's only a windfall if you keep it.  As other folks have said, if you gamble it on something else and lose it then it's just a cautionary tale.

Pootie22

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Re: How should I plan my life around a windfall?
« Reply #22 on: January 25, 2018, 04:07:28 PM »
I hope you didn't cash it all out!

Retire-Canada

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Re: How should I plan my life around a windfall?
« Reply #23 on: January 27, 2018, 08:10:54 AM »
Your current spending level requires a $225K investment portfolio to be financially independent so congrats on almost being there. Unless you've got some specific short term plans I'd get it invested in broad market index funds and compounding for you. If you get average market returns your investment will be worth double [after inflation] in something like 10yrs.

I would then look at what other opportunities you've got for increasing your income and your happiness. With that $200K working for you passively you've got a great financial foundation laid that will most likely let you retire early without doing anything else. So your next moves could either be aimed at speeding up that process even more or perhaps pursuing life goals that might not make you a ton of money, but that would increase your quality of life. Of course if you can do both at the same time that would be ideal.

Congrats on a sweet gambling windfall. Now walk away from the casino! ;)

jengod

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Re: How should I plan my life around a windfall?
« Reply #24 on: January 27, 2018, 02:16:02 PM »
PUT $150K in VOO and just fucking leave it there for 35 years. The end.

FINate

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Re: How should I plan my life around a windfall?
« Reply #25 on: January 27, 2018, 02:38:00 PM »
@streetride So what did you end up doing?

I hope you cashed out. Yes all of it. Even it would have increase in value the point is to transition from gambling/speculating to investing. You may win for a while gambling but are guaranteed to lose long-term, whereas investing is a sure long-term win. If you simply dump the proceeds into VTSAX and do absolutely nothing else then you should have over $1M in 20-25 years. This could set you up for FIRE if you do it right.

Reynolds531

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Re: How should I plan my life around a windfall?
« Reply #26 on: January 27, 2018, 03:42:27 PM »
Seven month old thread OP is long gone...???