I wanna be a woman of independent means... for more than a few months.
September 14, 2008 2:01 PM   Subscribe

Okay, so let's say you're a broke, middle-aged single female creative professional who infamously sucks with anything involving numbers. You do have expensive tastes, but you're generally quite frugal and like to shop at the 99¢ Store & swap meets. Even so, much to your own annoyance, you have just never done *well* with money when you've had it or ever done much grown up "long-term life planning"... but now you're about to come into a one-time windfall (possibly a six to seven figure sum in all). Oh Lordy. Time to grow up.

You have no real retirement or savings and you've never owned property or real investments of any kind, really. You definitely have an entrepreneurial mind and some great business ideas and you *could* be a great businessperson, but haven't progressed because unbeknownst to most people you are insanely insecure about your ability to succeed so you've a history of sabotaging yourself or talking yourself out of pursuing things. You never take your business ideas as far as you want to, instead always going back to doing work for hire jobs as a freelancer, making your wealthy employers wealthier while you're living paycheck to paycheck. It definitely doesn't help that you've never had any good role models financially. (Other people in your immediate family are even more irresponsible and messed up than you are, and you're terrified of this being your self-fulfilling legacy too.)

Now that you're going to suddenly come into some money, you don't want to screw up this one opportunity to provide for your future and open doors. You want to make good, intelligent investments of your time and money and stop being afraid of success so you can fulfill your potential in life and finally feel secure financially. You want to make your future a great, happy, relatively carefree one and to FINALLY become smart about these things and secure your status as a responsible, successful, happy adult... rather than fulfill your worst nightmare: that you'll end up a drunk old baglady whining about how she once had a gazillion dollars but let it slip through her fingers (Pass the Thunderbird please).

Sooooo, what should your gameplan be?

I've heard many a tale of people who won the lottery or inherited huge amounts and ended up fucking it all up. I REALLY don't want to be that stereotypical loser. I'm thinking it would be good to invest this money and live off the interest eventually, but I'm not sure how to make that happen realistically. I feel so freaking clueless on this stuff! There are things I would LOVE to do besides sit all day at my day job (travel, pursue business ideas, buy some new clothes, etc.), things that would make me happy and be fun... it would be great to have the financial freedom to do those things but I don't want to regret any choices so I'm hesitant. Unfortunately, knowing myself, while I stand around wondering what I should do with the money, it'll disappear. I just can't let that happen. I need a plan.

I want to look back and be proud of myself instead of hitting myself upside the head with profound regrets in my old age. Your insights, please. Thanks. (Oh, and I live in Southern California, if that matters.)
posted by anonymous to Work & Money (23 answers total) 15 users marked this as a favorite
The first thing you should do is meet with a professional financial planner who works on a fee-only basis. Seriously, that's Step One. He or she will give you lots of leads on useful resources.
posted by Sidhedevil at 2:13 PM on September 14, 2008 [1 favorite]

I don't have nuts and bolts advice, but you seem to have anxiety about this money. A therapist can help you work through it and that will make your nuts and bolts decisions much easier.
posted by By The Grace of God at 2:19 PM on September 14, 2008

Get a financial planner. Our ideas about money are formed in childhood and can be really irrantional. Get some recomendations, find someone you can relate to, explain all your fears and insecurities and state your goals and ambitions. Best of luck.
posted by fixedgear at 2:22 PM on September 14, 2008

Get a financial planner, of course (your bank can probably help with this; ours had one on staff, which was great). But:

definitely have an entrepreneurial mind and some great business ideas

sounds to me like a big warning bell. Many of the people I've read about who have blown large amounts of money (Mark Twain is a famous example) have done so because they had can't-miss, cast-iron business ideas that—surprise!—fell through. If I were you, I'd slap myself upside the head every time I even considered putting a chunk of the windfall into a "great business idea"; think of it as parallel to self-linking on MeFi (you're too involved to be a good judge). I'm sure there will be people telling you to "follow your dream!" (second most popular AskMe advice, right after DTMFA), but that's my two cents.
posted by languagehat at 2:27 PM on September 14, 2008 [2 favorites]

I feel so freaking clueless on this stuff!

Read this book: The Only Investment Guide You'll Ever Need. This is a very good book, written in an accessible style, that will provide you with an understanding of your investment options. If nothing else, this book will give you an understanding of what a financial planner is talking about when you meet with them (and, as Sidhedevil notes above, you definitely should meet with financial planners who work on a fee-only basis).

A lot of people psych themselves out when it comes to finances. Once you know some basic terminology and what your options are, I bet you'll feel more capable regarding making decisions about your financial future.

Good Luck!
posted by Fuzzy Monster at 2:29 PM on September 14, 2008

1. Financial Planner
2. Therapist
3. In lieu of either of those.. good Realtor and buy some income properties.
4. Learn everything you can about domain name investing. Don't buy anything until you've been learning for at least two months.
5. Remember you're not alone.
posted by FlamingBore at 2:37 PM on September 14, 2008 [1 favorite]

Whomever you hire should not work on commission, and offer a flat hourly rate or bundle rate for their services (without selling financial products). You should not be sold in to any products via this person, you're using them as your check point for goods and services from other vendors (Fidelity, Edward Jones, etc etc) and for strategic planning.

Contact a tax accountant or lawyer if you don't have one already, also hourly or flat fee based and find out what the financial implications of the windfall will be and what you may need to do now to prepare for it tax wise. This may be the same person as above. If you come in to the money before this all happens I would pick 3-4 large well capitalized national banks (Wells, Bank of America, etc) and split the funds across them to take best advantage short term of the FDIC program and to mitigate any potential loss, that is unless your financial institution offers insurance above and beyond FDIC limits.

Be prepared for people to try to sell you in to financial vehicles, it will happen pretty often. Don't buy in to anything until you have a well articulated long and short term plan that meets the objectives you've covered with the financial planner.

When you have the strategic plan from the financial planner, find another unconnected one and hire them specifically to vet and offer opinions on the first plan. Essentially go through the same exercise, flat rate, objectives, etc. It's ok to have options and you can probably afford the expense to get things started off in the direction that best lines up with your goals. You can over think this, so I think two sources will get you off the ground. I would not enter in to any contracts with a financial planner for long term services.

Finally, it's ok to ask people for their opinions or for their experience with specific planners or financial institutions, but go in to this understanding you'll still need to check the quality of their work.

Finally, I cannot recommend this book highly enough: Ernst and Young's Retirement Planning Guide.

It's a great read whether you do this yourself or just want to become educated and enabled to understand what's going on with retirement and finances.
posted by iamabot at 2:39 PM on September 14, 2008

Rich people 1) have money and 2) don't waste it, but are very frugal, often much more frugal than poor people. The show-offs on television are not that rich (nor for that long).

Read 5 Things The Average Millionaire Avoids and The Millionaire Next Door. Don't be one of all the entrepreneurial minds which thought they were the best and just spent the money. The best entrepreneurs makes business grow in itself without feeding it money "because it just need a bit in the beginning to start it up".

It's not using the money that makes happiness. It's having the money. A very different perspective: having is having the ability to skip the pain (e.g. ability to skip work when you don't feel like it, or to go to private hospitals). Drowning in pain pills (using the money all the time) doesn't make your life better. You don't have the money after you have used it---so obvious, but most people spend money like it was multiple-use. Human emotions such as friendship and love are multiple-use. Money is single-use. Be frugal with the money, just like it was a bit of your soul.

The best use of money is to know where tomorrows rent comes from. And in this current (and near future) economic state, you can very easily loose the money by typical investing. Keep it in the bank using high interest rates, don't investment in shares. The market goes down, down for a least a year.

Don't just trust what the bank tells you. If the bank's advisor knew the stuff, he wouldn't be employed as staff. He would be a milionaire. His job is to get you to spend your money at the banks investments division. Not to help you preserve your money---that's only what he tells you. A financial planner is like a shopping assistent: Primarly helping you spend, secondly helping you to buy good stuff.
posted by flif at 2:57 PM on September 14, 2008 [1 favorite]

Nthing the recommendation for an independent hourly/flat-fee based financial advisor and tax planner (who may be the same person.) Get a recommendation for a planner from friends you know who are responsible with money, check references. Hiring a second planner just to vet the work of the first may be useful if you don't feel you've got a solid grasp on why the first one is making the recommendations they should.

It's clear from your comments above that three key areas you'll need to address immediately are:
  • Budgeting - you can start on your own by tracking every single cent spent, every bill, say starting October 1, for 3 months. That will give you an idea where your money is going. The more information you have about your own spending habits and finances when you walk into that first meeting or two with the planner, the smoother it will all go (and the fewer sessions you'll probably need.)
  • Emergency Cushion - You should have 3-6 months of living expenses tucked away in a readily accessible money market account like ING Direct or HSBC Direct. This is money that doesn't get touched unless the shit really hits the fan.
  • Retirement Savings - If you're in your thirties and have nothing saved, this is probably where a good starter chunk of money may need to go, to make up for all the time lost. A planner will help you figure out how much you'll need and where to put it.
Any additional spending can wait until those three areas are taken care of. Whatever you do, do not make any big purchases (or even plan them) until you have an idea how you're going to build a sustainable portfolio. Ultimately, you may decide to ear mark some small portion of that money for an entrepeneurial idea, but until you've got the basics covered, don't even think about it.

8 lottery winners who lost their millions is just one example of the horror stories you're talking about - and a lot of that is due to lack of financial knowledge, and an inability to say no when people (especially family) come calling with pleas debt-relief. Since you said your family is even worse off, you'll want to develop a game plan for dealing with the inevitable requests you may get to "just pay off this one loan." A lot of the people in the linked article mixed family and money and got badly burned.

I'd recommend Mefi's own jdroth's blog Get Rich Slowly for articles covering a wide range of financial know-how, education and tips.
posted by canine epigram at 3:01 PM on September 14, 2008 [1 favorite]

In addition to all the other suggestions here, you need to get some good financial role models. Assuming you don't have such a person in real life, you can read the books such as The Millionaire Next Door for information about how financially successful people manage their money and their households. Suze Orman has some good books on the subject of women and money as well that touch on the psychological issues related to money.
posted by lsemel at 3:08 PM on September 14, 2008

You *could* be a great businessperson, but...you are insanely insecure about your ability to succeed so you've a history of sabotaging yourself or talking yourself out of pursuing things. You never take your business ideas as far as you want to.

So, the reality is you're *not* a great business person and probably won't be anytime soon. This is not a criticism, it's a reality check.

Your game plan is to name your top 5 priorities and work with someone (and I also like the fee-only financial planner advice up thread). Since it seems the big priority is conserving any wealth, it'll probably look something like:
- Fund retirement - as a woman you will need more, longer, than most men.
- Pay off debt
- Invest in something that might give you some income
- Create an emergency fund
- Build a budget that allows you to live off of less than you have
- Create a will to plan for any future transfer of wealth to another generation or organization

There are a number of books on sudden wealth and how people deal with inheritances or windfalls. Read at some of the reviews to see if any seem like a good match. I'd also allot a small amount (1%? .5%?) to spend on yourself to celebrate. :-) Good luck!
posted by cocoagirl at 3:14 PM on September 14, 2008

The best financial move I ever made when I came into a windfall was to pay off my credit cards, cancel them and cut up the cards. I have ever since lived on the debit system. It is funny, it actually has reduced my credit score to some extent because there is no "record" of my having commercial credit for the past 10 years, but I have no consumer debt, either.

If you have ANY consumer debt, I would pay that off first.

As others have posted, I would be wary of most if not all investments off the bat. Recognize in some circumstances that people who tell you about investments who have "great potential" are sitting there in offices having to tell you this, they are not out on their yachts and are still working for a living. If they had all the answers, they sure as heck would not be there having to convince you about your six or seven figures.

I agree about the hourly rate for financial planners, although I do have planners who take a small percentage of capital gains above principal as their fees in good times. I believe they take a certain flat fee per period of times when there are no capital gains to be had. So far this has all worked out towards the positive. Everyone hurts when the market is down, but we are better off overall.

Not knowing anything about investments, if I came into a windfall I would probably put it all in CDs with a prominent bank to at least earn interest while I figured out what I wanted to do, and at least tie it up for a while so that I was not tempted to spend it.

But, my best advice is to pay off consumer debt immediately.
posted by KWittman at 3:19 PM on September 14, 2008

I'm very much in the same boat and this is what I'm doing. It may be the wrong thing, I don't know - I have never had any money before either - but anyway what I did was sit down and think about my priorities and my long range goals. For me, I was already in the process of buying a house, so I thought about whether I actually wanted it and decided that yes, I did. Then I decided to buy that house for cash, so that I would a) cut my day to day expenses to the bone, giving me latitude for financial vagaries of the future and b) always have somewhere to live. This is taking care of the vast bulk of the legacy. With what is left, I'm giving some flat out to my daughter so she can pay off her car loan, investing some into a trust fund for my son so that he will receive the same amount as my daughter when he is the age she is now, setting up a small emergency fund for the house and myself and what's leftover is going into a locked tight IRA that I plan to completely forget about for the next thirty years.

At first I wanted to buy a new car! And a Wii! And an ipod! And a laptop! (this I might actually break down and do, okay, I confess) but I'm not going to do anything of the sort. In the name of splurging, I paid off my very small consumer debts and took all the animals to the vet to get completely up to date on their shots and stocked up on flea killer. I'm glad that I'm not going to blow it all and I'm looking forward to being financially independent in my old age. So, anyway, all these people who are saying financial planner are probably right - but this is what I did with mine.
posted by mygothlaundry at 4:04 PM on September 14, 2008 [1 favorite]

It sounds like starting a business isn't for you, at least not right now and at least not an expensive one that chews up too much of whatever money you come into.

A financial planner sounds like a good idea - and be sure to follow everyone's advice and choose one who is fee-only because if they're paid on commission that will influence their recommendations.

If you're not keen on the financial planner option, consider investing in an index fund. This is what Warren Buffett, considered one of the greatest investors, recommends for the average investor. Basically, index funds track against the performance of the broader stock market. While this mightn't have been great over the past 6 months, over the long term it will pay off.

Living off the interest sounds like a great plan. If it doesn't completely cover all of your living expenses, then perhaps you could try your hand at new jobs in a field you've always wanted to work in – the pay won't be quite as important as you'll only be looking for a smaller sum to offset your other income. This could even mean just working 6 months a year or some such.

Whatever you do, don't throw all the money into one risky endeavour such as a business or a single investment vehicle.
posted by puffl at 4:15 PM on September 14, 2008

In addition to endorsing the advice about getting hold of a fee-based financial advisor I would look upon the task of educating yourself about money as a sort of karmic payment for the gift of the windfall. Plenty of reading suggested above and in other savings/related threads. The sorts of area you ought to become familiar with - such as taxation, portfolio balancing, etc are often alien to people who have relatively little money - but pretty vital to those who do.

You may well find that your are either financially independent or very much closer to being so - meaning that you could live off the income generated by your capital alone. If you are this will have implications on the work that you do in the future: you could take a job where money is less of an issue or retire early - or carry on doing exactly what you are doing now. If any of this is the case then expect it to take you at least a year to plan what you are going to do - this will probably involve more complex decisions than the financial mechanics of what to do with your cash. Keep the money somewhere safe in the mean time - like in one or more savings accounts.

As others have pointed out short term millionaires are often the people who have the obvious trappings of fame. Those who have more luck in hanging on to their money tend to be far better at camouflaging their wealth from thieves, con-men, dubious charities, over-zealous tax authorities and begging acquaintances. In the UK, for example, moth eaten, elderly clothes are probably more characteristic of "old money" than they are of poverty.
posted by rongorongo at 4:32 PM on September 14, 2008

1. Learn to recognize the difference between assets and liabilities.

2. Read books by Joel Greenblatt

3. Learn about 'value investing'.

4. Recognize the similarity between laziness and patience, and also recognize the difference. Investments take patience, if you make good choices, it is kind of like being lazy, because while the world is anxious about the short term, you've got the long term in mind. Sometimes bad decisions are very pro-active, and thus good decisions feel lazy in contrast.

5. Stabilize your personal infrastructure, housing, transportation, etc. minimize your maintenance and upkeep duties and costs. There is the effect of wealth within the freedom from unneeded obligations.
posted by Vague_Blur at 4:34 PM on September 14, 2008

I am going to disagree with the first couple of responses in one respect. The first thing that you should do is put the money into a short-term investment that will hold it for six months. Then take a few breaths. In your case, you might want to take a few more.

Then proceed as my friends have outlined. But take your time. There is no urgency. Ask professionals in your area, such as lawyers or bankers, whom they would recommend as an independent, fee-based advisor. Do not accept an answer such as "Why, we have just the person." Ask for a recommendation not affiliated with the person you are contacting.
posted by megatherium at 4:57 PM on September 14, 2008

don't rush into anything. that is the most common mistake. consider taking a decend cd via bankrate.com for a few years and taking your time to figure this out slowly.
posted by krautland at 6:15 PM on September 14, 2008

Hmm, I can speak from experience on this one. First and foremost you will shop your wealth around to various financial planners. You are looking for experience with a good track record and then compare the amount they require to manage your money. I work with folks that take a percentage of the total portfolio- I have found that they are as interested as you in keeping your portfolio strong- the more you have the more they make. Just compare what their take is and play them off one another, six or seven figures mean you should probably pay out no more than 1%.

Then you will need a very good accountant- come April 15 the reality of having cash will hit you like a brick. You will have to pay Uncle Sam and pay him a lot. You will want somebody that can protect your cash and the only way they can do this is with knowledge- make sure your accountant knows his stuff.

After this part is covered you will have to become very, very disciplined. Lack of it is your greatest enemy. The view of wealth is not very well understood by people who have "come into money". You have to set up a budget and live by it. Take no more than what your budget will allow so you can continue to live off your cash. Work closely with your accountant on a monthly basis in the beginning so you can understand your budget. If you are disciplined there is no reason why you can not have trusts set up for your dependents long after you leave this earth.

After you take possession of the cash- have a party, establish a dollar figure with your accountant and financial planner and go wild.

After that the party is over and you have to realize that this new found wealth is your new job. You have to keep it healthy and let it take care of you. Right now is a great time to be entering the market. It is depressed and will probably grow after we hit the bottom your financial planner will spread your cash as to minimize your exposure, probably heavy in bonds and cash.

Just remember this is your newest baby and you have to take care of it as such.
posted by bkeene12 at 8:22 PM on September 14, 2008

Talk to at least three accountants and financial planners. You're assessing options here. Each will present to you a series of ideas and suggestions and consequences: all of these, whether passive investment, active investment, operation of a business, or something else, will basically amount to an input of a large sum of money at the beginning, and a constant output of a sum of money on a regular basis. Things all of them recommend, do. (Pay off any and all debts, that's a given. Get ahead on upcoming debts if you can. Buy a safe, sensible car and fully insure it. Buy a comfortable bed, a nice but not expensive TV, etc etc. You're not rich; you've moved from lower to upper middle class. Replace the stuff you have that is crap, but don't rush out and buy stuff you don't have and, until last week, got by perfectly well without.)

If you don't own your current house outright, look into one to buy outright. Don't rush into that: look for one that's an absolute bargain, in a place you want to live, with room for the things you want to do, and which passes all the pest, flood, etc inspections. Hire a building inspector to go over it with a fine-tooth comb. It needs to be a place you would be very happy to live the rest of your life in, or at least the next 5-10 years. Just my opinion, but: (1) better to get a house that's a little too big for you than too small, because you can rent out a room or two to a friend; (2) better to get a house with a large yard, because you can more easily build a storage shed, garage, extension on the house, pool, etc; (3) take maximum advantage of any rebates on solar panels and water tanks you can get. Consider paying off your current house and renting it out, or if it suits you perfectly, living in it free of rent (but still, responsible for ongoing expenses and rates etc).

As for your ongoing income, look into buying an existing business that has good turnover with not much per-week time and effort, which you can see ways to expand, doing something that you really want to do, whose current proprietor will offer training; alternatively, look into starting up a business based on a successful model. The idea is to do what the previous proprietors did as closely as you can stand to, and slowly add a little bit at a time. Whatever you really wanted to be, now's your opportunity to be that. So long as the business would support a person of modest means, requiring little in the way of knowledge and skills that you don't currently have, and offers you plenty of opportunity to expand it. If you love books, consider buying a bookstore. If you love 99c stores, look into buying one (although that will require you to manage employees). And so on. Do what you love. That in itself will make you happier and more likely to succeed than anything else. Pretty much any sensible activity can be turned to a profit, so long as you are motivated to do so.

There's nothing special about business owners that distinguishes them from you, other than the fact that they have taken the chance to set up a business. Yes, a lot of businesses fail; that's why I recommend buying one that isn't failing. People sell them for all kinds of reasons, not least being tired of doing the activity in question; that does not have to apply to you, especially not if you can see ways to expand it out and do things the current proprietors aren't, but which should return an income to you.

If you inherited a sufficiently large sum of money, you may not have to work actively, but you're still going to need to do something. If you buy several houses and rent them out, you'll need to research where to buy, how much rent to charge, what real estate agents (if any) to use, etc etc. Same, but more so, with any other form of "investment as a business".

Read anything you can find by Warren Buffett.
posted by aeschenkarnos at 10:33 PM on September 14, 2008

I had an inheritance come to me. A magnitude less than your amount, but still a decent sum. This is what I did:

1. I had an Estate Lawyer, who helped me with the inheritance.
2. Maxed out my ROTH IRA contributions for this year and next.
3. Put the rest in a long term CD.
4. Paid an accountant to have my taxes done professionally.
5. Put a little bit in a 'fun fund'.
6. Met with a Financial Planner to see what to do next.

I had no debt to pay off, so that wasn't a worry. But, some medical bills came due a few months after the inheritance. Because of that, I was able to just pay them off right when they came due, which was a huge relief. The only 'toy' I bought myself was a new laptop, but I had needed one anyway. It's not an amount of money that I could live off of for years, but it provides a nice cushion in case things go south financially.
posted by spinifex23 at 11:54 PM on September 14, 2008

Mefi mail me for a recommendation of a great money manager.
posted by zia at 12:14 AM on September 15, 2008

One further thought on the idea of starting a business: starting a business is one route by which to get rich if you are not (albeit against long odds). However if you ARE rich then starting (or bankrolling) a business can be a very efficient means of getting poor again in the most stressful manner.

The exception to this rule is a "lifestyle business" - this is one which is run as a means of taking up your time in a manner you find enjoyable. The amount of money you have invested in the business is sufficiently small to mean that if it fails to make cash - or even gently loses some - it will not make a serious impact on your financial position. Popular examples include small farms, restaurants, specialist shops and so on. Since you say that you want to express your creativity this might be a good option for you. While it might be hard work from a financial planning point of view your business is viewed as a plaything - not that different from a yacht or a collection of contemporary art.

Once again all of this would need careful planning with an accountant - however a good way of getting inspiration is to look at a website that offers businesses for sale (such as this one in the UK). These sites are a gold mine of information in that they will give you an idea of how much a business might make, what it would be worth - and, between the lines, why somebody might be wanting to dispose of it. If you have an idea of a business doing X then run a search for similar businesses listed on a site like this.
posted by rongorongo at 2:48 AM on September 15, 2008

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