Millionaire Daydreaming (Part 2)

So making the money is maybe half the fun.

The other half is deciding how to use it.

When you hear about people winning the lotto or a large sum of money, you usually hear about the things they buy immediately afterward.

I have also heard of the depression or suicide that may even come after a large windfall like that. This usually results from poor money management. Those who didn't know what to do with their money before they won the lotto usually aren't going to know what to do with the money after they win.

But they mostly do what they would think people who had just won the lotto do: Spend. Keep spending. New million dollar-plus house in a nice neighborhood chalked full of all the most expensive furniture, cookware, electronics. New cars. A boat maybe. Jewelry. Brand new wardrobe.

And by the time they look up, they've got all the best stuff, but now most of the money is gone - and maybe the emptiness inside arises from them not feeling like they deserved any of this. And of course they've quit their jobs because what was the point in making a mere fraction of what they had just won?

Well, this would never happen to me.

Mainly because I don't buy lotto tickets. But assuming I had made that ridiculous overnight win of over $1.4 million in a Goldman Sachs option, here's what I would do:

-Wake up the next morning and check my "Total equity" statement. Check my "Day trader buying power" which allows me a 4:1 ability on the funds in the account. Be amazed by both of the numbers.

-Immediately withdraw $1.2 million of it leaving the account with $250K to trade with. The ideal amount I've always wanted. Enough to keep my standard of living currently for a few years without going broke (in the market).

-Of that $1.2 million I would take $400K of it and put it in a 6 month CD yielding 4%. I would do this for tax purposes. By putting the money in a CD it would guarantee that I didn't touch that money until at least March of 2009, when I could take it out and make sure it went to the IRS. Thanks a lot for almost nothing in return by the way.

-The next thing I would do is handle my loans. We currently hold 4 loans in order of size: Our main 30 year fixed mortgage on our primary residence. A 5/1 ARM on our rental property. Our HELOC. And finally our car loan.

-Of the $800K I would take $100K to pay off our HELOC. This would allow me to refinance our primary residence mortgage. I would take another $150K to apply to our 30 year fixed mortgage and refinance it to a 15 year fixed. This would provide us not only with a lower monthly payment on our house, but it would also insure that with at least one of us working that we could afford the mortgage. We could also get the mortgage paid off sooner with a shorter loan time frame. I understand that paying down your mortgage isn't the smartest thing to do with your money, but given the times we're in right now I want to be safe.

-I would take another $50K and apply it toward our rental property's mortgage. I would also refinance that property in to a 15 year fixed loan. This would make for a much smaller monthly mortgage payment than we are paying now. We could then drop the rent on any future renters (or even our current ones assuming they stay after their year lease is up) and as long as we kept tenants we could make a nice profit over the next 15 years - even assuming we didn't sell at the end of 15 years.

Still keeping up? We're down to $500K now. Money goes fast when you're spending it.

-I'd take care of the cars. My dad always talks about getting his BMW 540. Well the 540 is no more, but we can get him a brand new 535. Out the door we're looking at around $65K full loaded. I imagine driving it home to him one day, red bow on top and all. Personally I've always dreamed of driving an Audi S4. It has been my dream car for the past 8 years. But then again I've never test driven one before - don't want to tempt myself because I can afford one - I just couldn't afford any gas for it or the insurance. But now that I've got cash available, why not? Out the door I'm looking at another $55K.

-Since I got the car, and the wife already had a nice car previously, we're going to keep her car. But of course we're going to have to spend a good chunk on her too. Only fair right? I'd allot up to $50K to her, but I'm sure she'd even have a hard time spending it. Or maybe not. You never know until you put someone in that sort of situation. I'm sure she'd get all the upgrades she wanted on the house. That is if I was able to talk her in to not getting a new house entirely. Notice how I was happy paying off the house we currently own? And not taking $300K of this money and putting it down on a million dollar home near the water? Yeah, that would be her blog post of how to spend a million dollars...not mine. Anyway, I'm sure she'd get the hard woods in most of the house (which is mostly carpet), upgrade the kitchen (our microwave sucks) and probably find more furniture. Also, she'd be free to spend at all the designer places that charge way too much for everything - without any guilt. Don't even get me started on the possibility of jewelry...

-Of course I can't forget my mom(s). Plural now. We'd have to find something nice for both of our sets of parents. They're all pretty frugal so I'm assuming they'd be happy with spending about $25K for each of the sets of parents. We could probably do a nice big family cruise with all of us.

-Split up another $100K to siblings. $50K to my sister and $25K each to the wife's brothers. I'd like to see the money spent properly though. Almost like mine - sure take a little off the top for a little fun, but save or invest the rest.

$180K to go now. We're almost there...all of this spending is getting tiring. But I definitely would not mind having to make these decisions.

-I would of course throw a huge party for all of my friends. Take them all out. But I don't have hundreds of friends. So at the most I think we could ever spend for a ridiculous party would be maybe $5-$10K. What I really want to do for them though is I want them to share the same love for money making that I had. I want them to hit it big like I had. Or at the least give it a shot. So for 4 of my friends - whoever wanted to, I would give them the ability to trade my money. I'd dole out $30K to 4 different people. Allow them to lose 20% ($6K) on me - which would drop them under the day trading requirement amount anyway. Once (if) they lost that $6K they could give the money back to me, no hard feelings. Anything they made though would be there's to keep, but once they had doubled their money, I'd like my initial start up capital back. If they never doubled it, no big deal. Just having them trading with me would be a lot of fun - having the ability to bounce ideas off one another, making a mini-competition of it, hopefully all becoming wealthy together. That is another place where lotto winners go wrong. They give out the money to friends and just like the lotto winners, those friends blow that money and come back looking for more. I want my friends to make money off of the money that I give to them.

-With the last portion of the money I would max out a 529 account for none other than myself. In the near future I'll be getting my MBA, and of course that's going to cost a good chunk of money. Why get my MBA when I had made so much money? Almost a million and a half dollars is a nice chunk of change for a guy in his mid-20s, but it's definitely not enough to retire comfortably for the rest of my life (obviously given what I would do with the money). In fact, although I might call in sick for a couple days after making that trade to celebrate, I'd still willingly go back in to work afterward. Nope, unfortunately to retire comfortably right now I'd need $5 million. It's never enough is it? Well maybe someday it will be.

After reading through this you might be thinking that I didn't do anything fun with the money. You're exactly right. That's where previous big money winners in the past have gone wrong.

But if I were to do something completely different I'd consider starting my own hedge fund and be open to accepting OPM (Other People's Money). Or I could launch a set of Five Guys franchises in Washington. I could go out and pick up 3 or 4 foreclosed homes on the cheap and hopefully sell them in 5-10 years. There's obviously so many things I could do, but I like to live like my parents - allergic to payments, intolerable of debt.

At the least though, it's nice to dream.