What Would You Do with a Million Dollars?

by Vered DeLeeuw · 138 comments

It’s a fun game, isn’t it? Imagining you have won a million dollar windfall and trying to figure out what you would do with it. Or, a different scenario: you work your butt off for 40 years, saving and investing wisely, and eventually get to a net worth of a million dollars. Phew. Now what?

A Million Dollars Isn’t That Much!

I think we’re all very aware that a million dollars isn’t what it used to be. In either scenario, whether you have worked and accumulated a million dollars, or whether you’ve received a windfall, you absolutely cannot go crazy and start spending uncontrollably. Let’s take a look at what you CAN do with a million dollars.

Invest for Income

This applies to the second scenario – the one where your net worth, after years of hard work, is a million dollars. Assuming your investment mix can generate an annual taxable income of 8%, a million dollars can generate an admittedly nice income of $80,000 per year – for many this is all it takes to comfortably retire, and for those of us living in more expensive areas, in major cities along the US coast, it would still be a major boost to whatever other retirement income we might have.

Spend Wisely

If you get a million dollar windfall at some earlier point in your life, when you still have many working years ahead of you, I would advise against viewing this as your ticket out of the workforce. As we saw above, this kind of money generates a nice income – but not necessarily enough to retire on, especially if you’re young and still need to raise kids. In addition, if you start using all the income that your nest egg generates at an early age rather than reinvest, your money will be gradually eroded by inflation.

What Would I Do?

The things on my own list if I ever received a sudden windfall include non-exciting items such as paying off any credit card debt, student loans and home mortgage. I would also reserve a small percentage (anywhere from 1%-5% or up to $50,000) for helping close family members such as parents and siblings with repaying their own debts and give another 1%-5%  to charity.

No Splurging At All? You’re So Boring

I actually do not rule out splurging a little. It’s normal to want to splurge when you receive an unexpected, large sum of money. I guess in my case I would allocate 1%-5% for splurging – this could go towards buying a new car, renovating the house or buying new furniture or art. Whatever floats your boat, by all means splurge a little on it, but do limit that splurge. It’s very easy to waste away a million dollars.

And the Rest?

So I repaid debt, gave some to family and some to charity, even splurged a little. Let’s assume I was left with half a million dollars. Now what? Now I invest, and I treat this as any other investment, creating a mix of stocks, bonds, cash, commodities and REITs – Whatever asset allocation I’m generally comfortable with. Now I sit back, watch the money grow, rebalance once a year and resist the urge to do anything else with that money, except for enjoying the extra security I now have.

What would YOU do with a million bucks?

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{ 138 comments… read them below or add one }

Sharma April 6, 2016 at 12:35 am

I will buy a business of my own choice for sure!!!

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