Advice on new found wealth needed (1 Viewer)

[Lars Larsen]

I recently started in a well-paying position as an engineer after a period of 3 years of unemploymency and temp jobs. Funny thing is, although I have 7-8 times more funds available now than before, I don't spend any of it and I don't feel any desire to do so! I haven't treated myself to any kind of new tech gadget/HT equipment or any other major investment in years, and I'm perfectly fine with it. Makes me wonder why I should even work, apart from the fact that I still have bills and rent to pay. Right now I'm working down some debt from when I was in college, but what's next? The economists probably hate me. I'm one of those people stalling the economy
I live in a cheap apartment but it's nice and cozy. I drive a shit car, but it's got personality and a will of it's own which kinda appeals to me. I have everything that I need. Society dictates that you should work and make money, which I do, but I don't really need all this money.
Should I just stockpile it and die a rich bastard or could I convert my excess funds into personal happiness in some other way?

 

[Joseph DeMartino]

Wealth will only bring you misery and unhappiness. You should give your excess money to me. PM for my mailing address.

Seriously - If you've been used to a reduced income and now suddenly find yourself with a lot more you should do two things:

1) Invest the bulk of it towards your retirement, marriage, eventually buying a house or some other major life event. It is good that you're not blowing the money, but you should put it to work. You should fully fund an IRA (possibly a Roth, do some reading and see which of the two IRA types will work best for you.) If your new job has a 401(k) or similar retirement account, invest the maximum. If not, open an investment account through a bank or brokerage. Either way, decide on your goals and your investment horizon (how long before you expect to draw the funds out?) Then pick an appropriate mix of equities (stocks), bonds, etc. A good mixed mutual stock fund tied to one of the major indexes is a good way to "buy the whole market" and not worry about the individual components. Professional manager tweak these funds as needed, and over time nothing touches the stock market for rate of return.

2) Throw a smaller amount of the money - say 10% to 20% of your first year's salary increase - in a regular savings or short-term money market account or 6 to 12 month CD. At the end of that time, take the money out and go nuts. Buy the toys. The thing about not going nuts when you suddenly have money available is that you probably haven't conquered the impulse to do so, you've just repressed it. Sooner or later it is going to burst forth, and you're liable to go really nuts. Setting a targeted amount aside and giving yourself permission to go crazy with it both satisfies and controls the impulse to do so. It is like like a dieter setting aside one meal a week or one day a month to eat whatever he/she wants. Controlled cheating. I used to work for a law firm that ended up doing trusts and the like for a great many people who inherited wealth unexpectedly, won lotteries, or otherwise came into money out of the blue and that was always part of the advice: Give yourself a reasonable amount of "mad money" and by the sports car or the insane stereo or those granite countertops. Then get on with the serious business of living and enjoying life.

I've been through some rough economic times myself in the past five years. As of last year I was making about half of what made in 2000, had had to sell my house and downsize to a condo, and generally tighten my belt. I am now working my way back up the economic food chain and I as I do I'm more inclined to make improvements to the condo, and keep living within my current means and just invest the "extta", as I start making it, for the future.

Regards,

Joe

 

[Dennis Nicholls]

Another thought along this line is to open a discount brokerage account and purchase "exchange traded funds" or EFTs. You don't pay loads or high fees, just the normal transaction charge which should be $10-$20 per order. This gives you flexibility in trading in and out. Most of my excess money goes purchasing shares of SPY which is an EFT that tracks the S&P500 index. The return certainly beats most money-market accounts.

I believe your reaction is typical. Whenever I had no money, I was always trying to buy stuff. Now that I have lots of money, most consumer goods really seem low-priority to me.

 

[Scott L]

IRA + mutual fund is my safe advice.

If you want to be more risky and really have a lot of dough, invest in some nice suburban property. My friends that bought their townhouses several years ago are selling them now for $80k+ profit. Depending where you are though it may be a great idea, or just not worth the trouble.

 

[Garrett Lundy]

Well, if your car really is a POS you might want to start stuffing a % of each weeks paycheck under a matress for when you have to replace it (even replace it with a new used car if you're feeling thrifty).

 

[SethH]

If it were me, I'd pay off the debt ASAP. There's no reason to be paying interest on anything if you're making 8x your old income and not spending anymore.

Next I'd start saving. Save for retirement as others have mentioned. You might also work toward a down payment on a small house. While you're fine in the apartment, it would be good to be building equity in a house instead of constantly paying rent.

 

[Kenneth]

I think Joseph has excellent advice as have others who have said keep some money aside for if your car goes south on you. Another thing to consider for your proportion of mad money is travel. If you are not really gadget centric taking a nice yearly vacation could be as enjoyable as a gadget you might not use frequently. Even with the best job you need time away.

Cheers,

Kenneth

 

[Eric_L]

Oh come on, how hard is it to figure out????

Do I have to spell it out for you????


T - R - O - P - H - Y

W - I - F - E

 

[Jeff_CusBlues]

If you truly don't need the money and don't think you ever will, I'm sure there a few charities that could benefit.

 

[Lars Larsen]

Thanks a lot for your advice and thoughts on this matter. I agree that I should probably put my money to work. I think I'd rather invest in some real estate and build equity as you say, than going for a bigger pension plan. That way I actually have something that I can enjoy right now, instead having of a piece of paper with some figures to look at. First step will probably be to save for a down payment on a house. Maybe I will have no trouble spending my money when I aquire a house some day. Right now I don't have to worry about property tax and maintenance costs or even water/electricity bills as these are fixed each month regardless of how much I use. It'll certainly be a different story when I buy my own house.

Btw, Dennis really sums it up pretty good:

 

[Joseph DeMartino]

I should have included Seth's advice about paying off any high-interest debt you're carrying. Real estate can be a good investment, but like everything else it goes in cycles. With lower interest rates dropping mortgage payments below rent in many areas demand for houses and condos skyrocketed, driving prices up very quickly in the past few years. But as new construction catches up and interest rates start to creep up again, demand will inevitably slow and prices level off or even drop a bit. You don't want to buy at the high end of the cycle if you can avoid it. BTW, you can withdraw money from most retirement plans without penalty for a first-time home purchase. (You do still pay tax on the income if it is withdrawn from an account created with pre-tax dollars.) So even that kind of investment can be an excellent pace to "save" for a house. Anything to beat the banks' big 2 percent return on your money.

I am kinda disappointed that you didn't see the merits of my first suggestion, but that's life.

Regards,

Joe