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10 Best & Worst Ways to Spend a Fortune

Attention, Facebook millionaires: Money can buy happiness--if you know the right way to spend. (Hint: Skip the yacht.)
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What would you do with a heck of a lot of money? Would you be happier? How much so?

In recent days, we've watched the aftermath of the Facebook IPO, and paid close attention as news broke that SAP is acquiring Ariba. We've been thinking about what happens when entrepreneurs come into a windfall. The classic advice is that you should do very little at first--no major lifestyle changes.

But of course not everyone follows that advice. Ariba was a public company with a soaring stock price a dozen years ago, when it acquired Jon's company, SupplierMarket.  Upon arriving at his new office, he noticed a LOT of flashy German cars filling the parking lot. An employee told him that something like 10% of all BMWs sold in Northern California that year were bought by newly minted Ariba millionaires.

We thought a lot about this as we explored how to lead a balanced life in our book, Breakthrough Entrepreneurship.

Wealth managers certainly have a theory or two. Earlier this year, The New York Times reported on the strategy that several Wall Street banks are following, beefing up their offices in Silicon Valley and getting in touch with executives and rank-and-file employees as soon as there is a rumor of an acquisition or an IPO. But, can money can buy happiness?

To some extent, it can. Research suggests that once you earn about $75,000 a year, adding more income doesn't increase happiness much. But of course most entrepreneurs want to make a heck of a lot more than that. And, what would you do--what should you do--if you suddenly found yourself with a windfall?

Carl Richards wrote recently, outlining seven things he thought he would do if his income suddenly doubled, which he in turn thought might improve his happiness. They included spending more time with his family, traveling with his kids, exercising, paying off debt, and even sleeping more.

(If there's one more article you read this year about happiness, please read this one, we promise it will be worth your time. Upfront sneak-peak: Regardless of whether you have a lot of money or a little, the most valuable thing you can buy is time. The ability to say no to things you don't want to do, so that you can focus on what's most important to you is paramount.)

So we got to thinking, what are the best and worst common things that a newly minted millionaire can do with his or her money? Here's what we came up with:

Ways to spend money that are likely to increase your happiness:

1. Health

Ask anyone who suffers from a chronic illness. Without your health, most everything else pales in comparison.

2. Family

They say you can't choose your family–-but in truth, you can. You're the one who decides who you're truly close to in life and who you love. Spending time with loved ones is an excellent way to feel connected and to increase your happiness; having a few more bucks in the bank can make that easier.

3. Travel

Studies show that experiences are more psychologically impactful than ownership of material goods. So think about visiting the Great Barrier Reef, touring the cathedrals of Europe, exploring a game park in Africa, viewing the tremendous beauty of the Iguazu Falls in Brazil, hiking the Appalachian Trail, or sampling the menus of the 10 best restaurants in the world.

4. Philanthropy

There are plenty of people who need money a lot more than you do. Think about what's important and whom you'd like to help. For example, teachers post ideas for projects in underfunded classrooms. There is an entire world that can be improved, so explore the possibilities.

5. Investment in Other Ventures

Many successful entrepreneurs seek to reinvest in new ventures. This can work great if you possess in-depth knowledge of an industry and have a sense about where to find the next great opportunities. Beware though--the qualities of a great investor are often quite different than that of an entrepreneur. In a word, you have to be more skeptical as an investor than you were as an entrepreneur.

Meantime, there are some endeavors that suddenly wealthy start-up entrepreneurs (and employees) might dream about pursuing, and which may be fun for a while, but are not likely to bring enduring happiness.

 Fun things that wear-off pretty quickly (ranked from worst to best):

1. Hookers and Blow

Some people (you know who you are) have watched too many movies, and think this is how you spend a fistful of cash. In other words, pure hedonism. If you really cannot resist, then dabble in Vegas, Amsterdam, or Bangkok. But keep in mind that just because you have money, you're not above the law--and once the cash dries up, your new "friends" will disappear fast.

2. Cars and Other Toys

Perhaps everyone who makes it big should allow themselves one toy. It's a good way to learn what money can and cannot buy. But at the very least, learn how to drive your new monster before you do this.

3. Trophies

People who hit the super-big time, often have too much money to actually spend. They turn to auction houses or yacht builders. If yachts are the answer, why are their owners always buying and selling them? When it comes to trophies, remember there's probably someone with a bigger one than yours.

4. Politics

Many wealthy people support political causes that are important to them.  Unfortunately, our political system has turned into a big financial arms race, and the reality is that campaigns at all levels are highly influenced by who can raise the most money. It may not be how a democracy should work, but it's how ours currently does.

5. Real estate

Finding a nice home is an important part of being happy. You may want to make your home in certain community, part of the country, with access to certain schools or recreation. But remember two things: First, bigger is not necessarily better. And second, well, you don't really need a "second." For those who buy three or four or five homes, that requires a full-time commitment simply to keep the places running. How much time do you want to spend on that? Hotels are a lot easier!

Good luck to you in your entrepreneurial ventures. Hopefully your primary motivation is your passion for an industry, your desire to create great new products or to solve customer problems. But it's only human to daydream about hitting the jackpot. Perhaps we've given you a few ideas to think about what you'd do.

IMAGE: Flickr/shanidov
Last updated: May 30, 2012

JON BURGSTONE | Columnist | Professor, UC Berkeley

Jon Burgstone was co-founder of SupplierMarket, acquired by Ariba for $1.1B. He now teaches at Berkeley, where he helped launch the Center for Entrepreneurship & Technology. He is co-author of Breakthrough Entrepreneurship.

BILL MURPHY JR. | Columnist

Bill Murphy Jr. is a journalist, ghostwriter, and entrepreneur. He is the author of Breakthrough Entrepreneurship (with Jon Burgstone) and is a former reporter for The Washington Post.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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