Going broke on 20 million dollars

One piece of critical advice given when starting a startup is the advice to measure.  Invariably, the follow up question is, "what should I measure?"  With life, there's a million things to measure and a million ways to do it along with another million opinions on what makes a good measurement.

Why is measuring important?  It's because you get good at the things you measure.  So if you want to get good at the right things, you must measure the right things.  When it comes to money, the saying goes, "it's not what you make, but what you save."  There's a lot of wisdom there.  The media is finally shedding some light on that thought with their exposes on the rich gone poor.  Football players blowing their tens and hundreds of millions and lotto winners going bankrupt shortly after taking their millions.

Everyone gets asked this question sooner or later, "if you won the lottery, would you take it as a lump sum or as an annuity?"

When I was smarter than everyone else, I would have taken the winnings as a lump sum.  I would have quit my job, travelled the world, invested it and been on my merry way to retirement.  The problem with having a lot of zeros in the bank is that it feels limitless.  What's 200k on a Ferrari on winning 20M?  Like way under 1%.  Another 1M on a *cough cough* modest house, 1M furnishing the house, 1M on a failed startup venture, 1M getting scammed (you gotta learn sometime, right?), 1M on paying off the mortgages of some dear family members, 100k here and there to pay for niece, nephew, cousin, coworker college educations, 50k-100k here and there to buy some cars.  How much did that sentence just cost me of my 20M?  About, everything.  Yep, all 20M is gone.  I only got 5M because, that's all I get after taxes & a lump sum payment.  Within a short breath, I've gone broke and I haven't even taken my wife to Chima.

Of course everyone else is thinking, 'no way would I let 5M go to waste like that.'  So do yourself an exercise and take a hypothetical 20M and spend it on paper.  Unglamorous as it is, that 5M after lump sum payment & taxes will be gone in a heartbeat without some modicum of self-control.

So you've decided to be smart and take the annuity on 20M and now have to tell friends and family about it because sooner or later the news comes out.  Here's a piece of advice.  When someone asks, "Why didn't you take the lump sum?"

Don't even hesitate.  Your default response should be, "Fuck you."

The only reason to ask why one didn't take the lump sum is because they want your money.  Of course there's the financial-illiterate and genuinely curious folk, but even the innocent looking 10 year old is having a wet-dream about going to middle-school in a limo and building the biggest slip 'n slide known to man so he can host the most epic birthday pool part ever.  There's so much wasteful desire hidden in the words, lump-sum.

Everyone who talks about starting a business or investing it is full of shit.  Ask them when they got their Series 7 if they are investors.  No matter what they think, unless they actually have a track record for returns, their words have no ability for a return, no matter how good it seems.  Is some random joe selling you some amazing secret-investment going to do better than 7-figure earning hedge-fund Ivy league grad?  Probably not.  Sure, there's good investment advice, but signing over money on a guaranteed XXX% return is 99.99999% never the right decision ever.

The next reason to take an annuity is because if you decide to screw up, you can only screw up in 1 year intervals.  So you decide to go all extravagant with the 500k after taxes and buy a 200k ferrari and pay off the 300k house.  Now you can't buy gas for your ferrari and must choose between eating beans and rice so that you can afford your 5 mpg car.  Next year, hopefully you spend your money more wisely and have sold the Ferrari and upgraded to a Hyundai.

The final reason to take an annuity is that you can't let your heart screw you over.  By design, no matter how much you want to pay for little Johnny's college, start a business with your bestest-bestest-best-best friend, you can not.  If you're serious about starting a business, you now have 1-3 years of saving up those annuity payments while researching and becoming a domain expert in your chosen field, while also having the opportunity to retake Accounting 101 at the local community college so you don't look like an idiot that can't tell the difference between an asset and a liability.  At least burn away the money on an MBA instead of bling.

20 million dollars and a lot more ways than dollars to go broke.  Take the annuity and live the nice simple life.  Sleep-in, exercise and take on some inconsequentially small, cheap hobby.  Live a nice long life and have lots of monogamous bareback sex, because a billion dollars and herpes...