Open Letter to New Facebook Millionaires: Pay off mom’s mortgage! (And 5 other tips)

Every once in awhile the matrix reboots itself. When Facebook makes its initial public offering this week, there will be an estimated 1,000 newly minted millionaires from the employee ranks.

It’s hard for me not to reflect back 20 years ago to the heady days of Microsoft’s rise, resulting in a reported 1,200 people at the company reaching ‘millionaire’ status overnight. We were all in our 20′s, and the company garage seemed to fill instantaneously with exotic sports cars with expensive ski racks.

And then, almost 10 years after that, I found myself in a ‘deja-vu’ at Google after they bought my startup company just a few years after their own IPO. Newspaper articles in the halls of Google cited stories of my colleagues buying homes in Lake Tahoe, and/or participating in philanthropy.  There were vast cultural differences between how the two companies’ workforces handled their newfound wealth (Microsoft celebrated it, while Google frowned upon constant stock price checking), but in both cases the miracle happened en masse, and overnight.

Many managed to hold on to their money. Many others didn’t. For some, stock wealth launched entrepreneurship and philanthropy. For others, materialism and conspicuous consumption. It was a lottery ticket, plain and simple. And statistically, 90% of all lottery ticket winners go broke after 3 years. And while people seldom talk about money in our culture, avoiding the topic makes history repeat itself, and stigmatizes issues around money.

Thus, I offer some very candid advice for my younger colleagues at Facebook, who are about to have a life-changing event.

1.  Take 10% of your earnings, and immediately get some sh*t out of your system. 

Jonathan Sposato

It’s OK. Play a little. If you’ve been driving around in a crappy car since sophomore year of college and you want to upgrade your ride, do it. If you’ve been buying from the sale rack of Old Navy and now want to own a Prada tux, go for it. Celebrate a little. Just put a limit on it. There’s some interesting psychology around bracketing your excesses, vs. the dangers of leaving them open-ended when money seems endless. For some of us, 10% was a good rule but this is, of course, very personal. Don’t be the guy with 75% of his new earnings tied up in cars, boats, and condos in Vail.

If you don’t want to do any of those things, more power to you.

2. Take another 10% to 20%, and be an angel.

Regardless of how you fill your own materialism tank, create some new value. There’s been a lot of buzz recently amongst local Seattle entrepreneurs about pledging to put 5% of their last exit’s money into new startups. I applaud this movement with great enthusiasm, and would encourage folks to do more than 5%.

Facebook millionaires, I challenge you to do 10% or 20%. Heck spend some of it up here in Seattle! Now is an amazing time in the world to do startups and catalyze new innovation. It’s never been faster and easier to reach real customers and achieve scale. The forward national outlook on business conditions simply looks great. Win or fail, you are enabling someone else’s dream. They don’t use the term ‘angel’ for nothing.

3.  Pay off mom and dad’s mortgage.

Make at least one person in your life not have to worry about how they’re going to live. When my startup Phatbits was bought by Google in 2005, one of the coolest moments was when co-founder/CTO Geoff decided to pay off his mom and dad’s mortgage. His mom actually burst out in tears. Awesome.

Facebook millionaires, you have moms, too.

4.  Beware of things being out of scale, and defer big ticket items until later.

You’re 26 years old, do you really need Italian marble in your kitchen? And if you just gotta, then please don’t talk about it like you quarried the marble yourself. Money and the things that it buys ultimately create distance between you and others. No one in polite company will say this to your face, but secretly they are measuring you based on your ability to deal with your new wealth. It’s just a little weird for others to hear that on Friday, you’re headed out to Hawaii on your own jet to do a little surfing.

The city of Seattle is littered with stories from realtors, lawyers, and small business owners who found the kind of excess in this town during the 90′s off-putting. (To be clear, I’m talking about a few people, not the majority).  In your 20′s, there’s so much greater life value to lessening barriers vs. erecting them. You’ll have to work hard to ensure that others still find you accessible and ‘down to earth’.  This means, to some extent, having the same problems as everyone else.

Plus, as a practical matter, your tastes will change as you get older. Don’t be stuck with the expensive Italian marble that you thought was so cool 10 years ago when your new wife/husband moves in.

5. For god’s sake diversify, and I don’t mean buy a big house.

Technology people know technology, but it’s highly important to take a significant portion of your new earnings and diversity it out of tech.

There’s a myth perpetuated in this country that your house is your biggest and most important investment. I think it’s a bit of a circular reference because that fact may be the byproduct of most people not having access to other asset classes, and thus their house is their biggest investment by default. As a new high-net-worth individual, you’ve short-circuited this gloriously. Any good investment professional within a square mile radius of 1601 Willow Road will help you to find the right allocation of assets that will balance hedging risk and growth, without the social implications of ‘the big house.’

The years during Microsoft’s stock growth coincided with (and caused) a surge in real estate values in the Seattle area.  It was like the same 500 or 600 people were chasing after the same few good neighborhoods to live in.  Multiple bidding wars were common in the hottest neighborhoods and consequently it was not uncommon to find colleagues who ponied up big to get the house they were expected to live in, spending a significant portion of their newfound wealth to do so. When the dot-com downturn occurred later in 2001, many were left with their house as their biggest investment by default.

As the current debate rages on with regard to why there aren’t more angel investors in Seattle, I have to wonder if that is partly the result of a generation of us having locked up a lot of our net worth in non-liquid things.

Bay Area demographics and real estate dynamics are similar, and it’s my hope that the Facebook generation follows a different path. Buy a cool mid-century Eichler in Menlo Park. Buff it out and make it cool. Leave Atherton’s mansions for the old folks, and put the money you saved into your favorite causes (or see #2 above).

6. It’s your relationship with money that counts, not the amount of money.  

Probably the most unfathomable notion to a young, newly minted millionaire is that someday the money will run out.  Believe me, there is no shortage of ways that your money can quickly be spent — from initial taxes, to family members in need, retirement allocation, unforseen illness, etc. But regardless of whether you have 1 million or 10 million, the key to sustaining your wealth long-term is predicated on your personal vision for how you want money to impact you, and how you want to impact it.  For instance:

  • are you the type of person who will always work regardless?
  • how much of what brings you happiness is the result of spending your money? vs. making it?
  • are you excited by the challenge of launching new businesses?
  • do you like to build new things? build new teams?
  • if you were to suffer a financial setback down the road, would you be willing and able to rebuild?
  • are you defined by the things that money buys you? or the the impact it can have on others?

At the end of the day, these are high-class problems to have. As a 45-year-old looking back, I am a little envious of you Facebook kids.  It’s going to be a wild ride for you guys, the likes of which the world really hasn’t seen. I wish you success, balance, and ultimately happiness with your future accomplishments and impact you will have on the world.  Your 30’s and 40’s will come upon you faster than you think (especially given your famous all-night hackathons and lock-downs), so I’ll leave you with a quote from one of my favorite 80’s teen movies.

“Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” - Ferris Bueller

Seattle-based entrepreneur and investor Jonathan Sposato is GeekWire’s chairman and the former CEO of online photo editing startup Picnik.

Top image: GeekWire illustration based on photo via BigStock.

  • Paul O

    This is NYT-, WSJ-quality personal finance content. Well conceived and well written.  Great stuff. Thanks for sharing on GW!

  • Nichole H Bockner

    Jonathan – your advice is spot on, particularly your point #4 regarding erecting barriers through wealth. At the end of the day, it is our relationships that fullfill us and make life rich, not our bank accounts. Hard advice for any 22 year old to understand (I certainly didn’t), but maybe your words will make on impression. I was at a memorial service recently for man who happened to be quite wealthy, but was struck by everyone who spoke about his character, his generosity and the small moments in life that made an impression versus anything that had anything to do with accumulating or consuming (just giving it away or investing in others, your points #2 and #3).

  • http://josephsunga.com/ Joseph Sunga

    #3 Pay off mom and dad’s mortgage has always been a goal of mine. My specific goal has been to “Pay off mom and dad’s debt” so they can just enjoy life care-free. :)

  • Janis Machala

    Jonathan: I applaud your advice to those newly minted rich techies. As someone also older who has had smaller wins and been at some companies in the hey day like Sun and Microsoft, I could not agree more with your advice. There are stories of those who bought on margin and then found out about margin calls and lost it all! Stuff does not matter!  In fact, it can alienate you from your friends and family who didn’t win the lottery ticket. Tastes do indeed change! I have the art, china, crystal, and silver patterns to prove it! Significant others can drive you in a different direction which leads to waste. Pay it Forward is one of the key lessons from Silicon Valley. Support your entrepreneurial friends who may not have the right connections but have the right talent and passion. I cannot tell you how much it mattered to my father-in-law one day when a brand new pick-up truck arrived in his driveway for Father’s Day. He still talks about that-I now imagine what paying off their mortage would have meant/done for them. GREAT suggestion! We should put you on the national speaker circuit on the topic of those who realize they won the lottery and those who think they were the reason Facebook/Google/Microsoft succeeded. How you think about your new found wealth and embrace it will chance your life more than the actual money and you’ve captured this in an amazing piece of writing! Values matter!

  • http://twitter.com/daniellehuston Danielle Huston

    This is great financial advice whether you’re a soon-to-be Facebook millionaire or a middle class family trying to do it right.  Love!

  • me

    Man, I’d sure like to have this as a problem to wade through!

  • Bob Silver

     This is terrific commentary that you can’t get anywhere else. Thanks for sharing, Jonathan, and thanks for publishing, GW!

  • http://www.facebook.com/fitclimb Ali Alami

    Great advice, I’d also put taking some time out to Travel the world on the list, and not as a standard tourist, get to know the locals and explore how others face challenges.

  • jdbt

    I’m taking notes for later when I sell my startup for $2.1B. 

  • Nick Huzar

    Well said.

  • Bruce Wayne

    Also, you’re probably nowhere near as rich as you think. Unless you’ve topped $10 million after tax, you need to seriously consider how long the money has to last if you want to stop working. The supposed 4% withdrawal rule is intended for folk in their 60s, as it’s meant to give a decent chance of not running out of money after a mere 30 years. If you’re 30, you need to budget for more like 60 years. Note that you probably won’t make much more than inflation on your *after* tax return, so the surest bet is to divide your net worth by (90 – current age) to see what’d happen if you withdrew that much each year and just kept up with inflation otherwise. It’ll likely be less of an annual income that you consider “rich”. 

    For example, say you’re 30 and have 5 million. That’d give you a whopping $83,333 a year.  Not bad, certainly above average for the US (and that’s the after tax amount, so call it around a $130,000 salary in Silicon Valley), but not where your lifestyle’s going to involve first class plane flights, let alone private jets.

  • stevesi

    A very thoughtful article and worth this small set of folks reading. 

    There’s an alternate point of view that just says to stay focused and continue on “creating wealth” until you gain more experience in life.  If you’re a hacker, keep hacking as though nothing ever happened and keep contributing to the organization that you were lucky enough to join and happened to offer this gift to you.  While you might always have some misfortune and regret having not lived large, statistically you are probably more likely to get a bit older and regret having made a lot of financial choices and decisions without more life experience first. 

    Diversification is nice but it is also costly if you believe in the organization you are part of more than other organizations.  It sounds great on paper and many investment advisors will preach it, but really ask yourself if you believe in other organizations more.  At least think about that for a few years.  Yes, your organization can become the victim of some misfortune, but is that more or less likely that an organization you don’t know anything about but are investing in?

    Thinking about doing good things?  Ask if you would be in a better position to do good things if you accumulate more wealth and more life experience.  Maybe you’ll make better choices, have more time, or just have more resources to contribute?

    Above all, if you think you don’t need to work or are “set” then pause and do some math. It takes a lot of money to not work–actually it takes almost the same amount of money to not work as it does if you just kept at your job for the rest of your working life, but adjusted for real growth and real inflation.  Compounded percentages are pretty scary when taken out 75 years.

  • Andrew Morton

    Working for Jonathan was one of the best experiences of my life.  This guy knows his stuff!

  • http://twitter.com/dk_ryan Deborah K Ryan

    Great advice. My goal is to sell a brick and mortar biz and pay at least half of my daughter’s rising school loan debt (due to interest), since she works feverishly, yet skims by monthly. I’d like to see her have a bit of time to have children (and have time for them) and relax every now and then.

  • http://www.duncanhaley.com John Haley

    Jonathan, great advice and insight my friend.  I really like the idea of reinvesting proceeds, within reason, to help other businesses get started.  This sort of event can really make a person reflect on who they are and what they want to be about.  A couple of nuances I would add:

    1. Don’t add any debts or lifestyle items that translate into significant ogoing expenses (not easily affordable with your current SALARY) - this also means being accutely aware of potential future funding needs of private investments – a person can get behind the 8 ball quickly if not careful here.

    2. Keep your core investments liquid and relatively conservative for at least a year.   There’s been a proliferation of complex financial products out there that sound VERY appealing but can tie up your capital for long periods if not indefinately – not pretty if they don’t end up working out or better opportunities present themselves along the way.

    Congrats to all the Facebookers out there on this incredible milestone of success!  May it be the first of many.