While you are evaluating whether you can even afford to enter the WSOP this year [Hint: I don’t pay $10k to enter a poker tournament; but I don’t mind playing a few satellites to try and win a seat], consider what last year’s winners COULD have bought with their money: http://www.pokerlistings.com/blog/what-to-buy-with-wsop-main-event-moneyz
Let’s say that you do beat 6485 ‘losers’ to make it to the Final Table of the Main Event (a.k.a. The November Nine), what do I suggest that you do with your winnings?
You finish 9th (pays ~ $1.2 million):
Firstly, you need to console yourself with being in the most embarassing position of having all of your friends, relatives, and hanger’s-on watching you bust out first by buying yourself a gift or two [AJC: I’m not suggesting that you buy the Chopard Super Ice Cube Watch!] …
… my usual Making Money 101 advice for those dealing with large amounts of ‘found money’ is to spend no more than 5% of your windfall [AJC: for this post, I am assuming that (a) you are not a professional poker player, and (b) the amount that you win is life-changing].
Now, before you go spending most/all of that ‘guilt free’ $60k on a car, realize that in a number of years it won’t be as new and exciting as it was when you bought it, and you may not be able to afford to replace it.
Well, the 5% Rule accounts for ALL of your possessions (incl. furniture, clothes, art, knick-knacks, guitars, consumer electronics, etc., etc.), not just your car … if you spend 5% of your entire net worth on a car now, you may have problems buying ‘other stuff’ later.
[AJC: Remember, the 5% Rule states that ALL of your possessions other than your house and investments must not account for more than 5% of your entire Net Worth at any point in time. In fact, a good rule of thumb is that your car/s should not be worth more than half your possessions – or 2.5% of your Net Worth – leaving plenty for other purchases]
So, buy a smaller (but, still nicer/newer) car, and a vacation, and some celebratory rounds of drinks with family – but, do NOT start paying off their debts and buying them stuff as you ain’t their ‘rich cousin’ even though $1.2 million may sound super-rich to them 😉
Now, how about the other 95%?
Well, if your Number is $1,140,000 then you get to retire!
But, if your Number is larger than that, then realize that what you have just earned is seed capital to reach your Number.
Think about it: $1,140,000 x 5% (which is regarded as a reasonably ‘safe’ withdrawal rate) = $57k a year to live off. Nice for some, but hardly a $7 million in 7 years lifestyle.
Keep your job, invest the entire $1,140,000 in something as motley as Index Funds, and you could double your capital in 10 years (assuming an 8% return). Put it into Real-Estate ($100k down, and $140k buffer against vacancies and repairs/maintenance) and you could end up with a lot more. Invest a portion in your next start up, and invest the rest (“just in case”), and you could be the next Bill Gates.
This advice probably also applies to the 8th ($1.3m), 7th ($1.4m), and 6th ($1.5m) place finishers …
Next week, I’ll tell you what to do if you finish 5th 🙂
Normally they withhold 30%+ taxes on the check, so with a winning of $1.2 million, your take home will be well under $900K. All else still applies though.
I like Hold em, however beating out 6000 people take some pretty long odds, good player or not.
@ Mike – True: I really should talk after-tax figures … but, these are only arbitrary numbers, right?
did you come 5th?
Yes – the numbers are arbitrary and your point is still valid.
You should be advising actors and sports figures who suddenly come into a pile of money.
@ Mike – actually, that is something that I have been thinking about, but have no idea how to break into … not that I’m really looking for a business or consulting opportunity, but it would be fun! 🙂
I’d probably wait a good six months to year before making any major decision and continue to life my normal life. After which it would most likely be the strategy you suggested of investing in real estate with a buffer and living off the income.
@ Ryan – Good luck with that waiting thing … oh, and I think you can throw that ‘normal life’ out the window (esp. if you win!) 😉
I don’t know- If I won 1, 2 or even the #1 spot of 6 million I wouldn’t change my life just yet. I could still just do what I’m doing for another couple of months / years.
Now if I came across $50 million cash in hand I’d be itching to hang things up a whole lot quicker!
@ Mike – Let us know what you decide once you get that $6 mill. check 😉
People have a tendency to do strange things once they actually have that amount of money in their hands … part of my job – as I see it – on this blog is to give you some ‘rules’ that will help keep you out of trouble when that fortunate day arrives!
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I’ve got $1.3 M cash in hand and don’t have an itch to blow it now. So I don’t see that changing much with $6 million…
@ Mike – Having been in both situations, let me know how YOU feel when you get there 😉
Will do, although it may take few years 🙂
Maybe this thought may make some sense. I had once heard there are 4 types of money:
1. Money you earn yourself and spend on yourself.
2. Money you earn yourself and spend on someone else.
3. Money that you did not earn that you can spend on yourself.
4. Money that you did not earn that you can spend on someone else.
Note that #1 tends to be spent the most conservatively I dare say- the reason is that you understand the value of the effort required to earn that money and can use that to determine the best value for money when spending.
#2 is almost as good as #1 however you are buying something for someone else.
#3 is likely what you are alluding to for the case of winning the World Series of Poker, or the lottery, or a stock option windfall, etc. When such a large sum comes in then it’s hard to ‘value’ the effort required to earn this money. And therefore it’s easy to lose perspective and blow the money on cars, boats, parties, etc. This is where you need to make some rules to help people hang on to what they got. In this case the phrase Easy come, Easy go does indeed apply.
Since the only way I will get to $6 million would be through money earned by myself it’s unlikely I’ll ever be in the Easy Come, Easy Go mindset.
Oh and for point #4 this is the most inefficient way to spend money. Tax money and political spending all fit into this category- there is no level of effort required to ‘earn’ the money and it’s not being spent directly for the politicans’ benefit so that’s why there is so much wasteful spending going on without any pain or hardship on the decision maker.
7 million dollars for such a young kid is amazing 🙂 But someone told me when people win lottery after 5 years they end up being in the worse condition then before because they spend it too fast.