How to spend one million dollars

How to spend one million dollars

21%: Save

About a fifth of those questioned said they’d save the money. That’s an excellent thing to do — especially if you don’t already have a stocked emergency fund.

Most of us need to have such a fund, which would be full of three to six months’ worth of living expenses — if not a little more. A job loss can happen at any time, as can a costly health setback or even an expensive repair that’s suddenly needed for your car or home. Be sure to have access to enough money to keep your roof over your head, food on your table, your taxes paid, the lights on, and so on.

You probably don’t need to put the entire million dollars into an emergency fund, though. Putting much of it in investment accounts, such as those earmarked for retirement, is a top-notch idea, as well.

3. Improve Tax Awareness

Sometimes, individuals think that doing their own taxes will save them money. In some cases, they might be right. However, in other cases, it may actually end up costing them money because they fail to take advantage of the many deductions available to them.

Try to become more educated as far as what types of items are deductible. You should also understand when it makes sense to move away from the standard deduction and start itemizing your return.

However, if you're not willing or able to become educated about filing your own income taxes, it may actually pay to hire some help, particularly if you are self-employed, own a business, or have other circumstances that complicate your tax return.

Video

28%: Pay down debt

More than a quarter of respondents said they’d use their million-dollar windfall to pay down debt, and with a million dollars, most people with debt should be able to pay off all of it. This is a very smart move and arguably the best use of your money if you’re carrying any high-interest rate debt, such as that from credit cards.

Note, too, that you don’t need a windfall to get out of debt, even if you owe many thousands of dollars. There are a bunch of effective strategies, such as earning more money, spending less, consolidating debts, targeting your highest-interest rate debts first, and using balance-transfer cards.

A Word Of Caution: Utilize Leverage the Right Way

There are several methods for making money using your funds. When you take money, you’re able to get far better returns than if you invested your own money. As a result, funding is frequently known as “leverage.”

Please use care and caution when using other people’s money. If things go wrong, you may find that you’re over-leveraged and unable to repay your loan.

Never invest in something you don’t fully comprehend. Never put your money in the hands of someone who hasn’t been successful in the particular investing plan on several occasions.

Private loans and the property that’s rented can be very profitable. Still, they can also be money traps if your investments are in areas with high crime, deteriorating cities with no employment development, or property with unresolved maintenance concerns, for example.

It is critical to be informed about the investments you intend to pursue or seek mentorship from someone who has successfully done what you are doing.

So what have we learned?

Having one million dollars is nice but you have to stay smart with your money and keep working for a while because it isn’t quite enough to cover everything in the average life, long term. If you follow our plan though you can be pretty close to “living like a millionaire” though!

The department of labor says that the average family spends about $60,000 per year, so having $32,000/yr from real estate investments and $20,000/yr coming from stocks gets you pretty close to not even needing a job anymore. You just need to keep up your job for a bit to make sure you won’t eventually land back on hard times.

If you use your million dollars properly you can have a better job, tons of easy side income, an emergency buffer, and little debt!

Does that sound like a millionaire lifestyle to you?

Can you live off 1 million dollars?Not easily. According to the department of labor an average family spends $60,000 per year. A savings account will yield 0.6% which is only $6,000 per year. Stock market investments would only yield $40,000 according to the 4% rule. One million dollars of rental properties could yield $80,000 but it would be unwise to be 100% invested in real estate. So even once someone has one million dollars they should keep working. You can however, dramatically improve your life through strong finances, educating yourself to a better job and outsourcing work you dislike with your new income.How much interest does 1 million dollars earn per year? In 2020 savings accounts and CDs only yield around 0.6%. So the interest provided by a $1,000,000 account is only $6000/yr. Investment grade bonds would yield significantly more money at 2.8% or $28,000/yr but those still pale in comparison to the historical average of 10% returns from stock market investments.What would you do if you had 1 million dollars?If I had one million dollars suddenly appear in my bank account, I would invest it mostly in real estate then use the future cashflow to improve my quality of life. Hiring cleaners, landscapers, and assistants since I’ve already covered the SUPER efficient investments. It would be tempting to spend it on a nice boat or car but I know I would prefer to spend an extra few thousand dollars a month instead of having one large expensive item.What can I do with 1 million dollars of cash? With 1 million dollars cash you can buy almost anything outright. Houses, cars and even boats. You can buy a brand new catamaran and sail the whole world in comfort. A more interesting use of your money though would be to invest your money to improve your daily life as much as possible long term. If you invest your one million dollars you can have many thousands of dollars of cashflow per month for the rest of your life. Then you can use that money to make your life better. Once you have that much cashflow, bills are easy to pay, better credit cards become available and you end up getting better rates on loans which further improves your life.Are you a millionaire if you have 1 million dollars?One million dollars isn’t what it used to be, that’s for sure. You can’t retire and you can’t live like someone in a music video. Living that lifestyle would require some multi-millionaire level of wealth. You do have enough money to radically improve your standard of living and live a much richer life. Once you have 1 million dollars saved up you have more money in savings than 92% of adults in the USA and you can easily have a few thousand dollars of extra passive income per month to use to improve your life.What should I do with 1 million dollars? If you suddenly find yourself with 1 million dollars in your bank account you should: 1 – Pay off bad debt – Saving on interest, reducing stress and improving your credit. 2 – Make a plan – If you don’t allocate it all out somewhere intelligent, you will spend it frivolesouly. 3 – Fill up your tax sheltered accounts and employer matches – It’s free money 4 – Educate yourself to improve your work life or move into a career you prefer 5 – Use your new credit – Now that you have money and no bad debt you have great credit. Refinance your loans and get some amazing credit cards. 6 – Make an emergency fund – This will reduce your stress level for your whole life. 7 – Invest in the stock market – Invest 1/2 of the money in the stock market via index funds. This should yield around $20,000 of income for life and be possible to liquidate if it’s ever needed. 8 – Don’t pay off your mortgage – Mortgage interest is too low to focus on. Improve your income first. 9 – Invest in real estate – Rentals yield lifelong income and a higher payout than stock investments. Having a portfolio of rentals ensures you will have a strong side income for life.Are you rich if you have 1 million dollars? The level that people consider you to “rich” keeps moving around. Even different age groups tend to think different amounts of wealth constitute as “rich”. However, once you have one million dollars you have more money than 92% of adults in the USA and can invest that money to live a much richer life no-matter what anyone thinks is “rich.” If you invest $1M you can have an extra $40,000 of income every year. You can use that money to hire pool cleaners and dog walkers or whatever else makes you feel rich. Then it doesn’t matter what other people think.

6. Dont Sell Yourself Short

Some individuals are extremely loyal to their employers and will stay with them for years without seeing their incomes take a jump. This can be a mistake, as increasing your income is an excellent way to boost your rate of saving.

Always keep your eye out for other opportunities and try not to sell yourself short. Work hard and find an employer who will compensate you for your work ethic, skills, and experience.

Start with THE 5 SUPER efficient investments for one million dollars

Step 1 – Pay off BAD debt ($25K)

If you have high-interest rate debt like credit card debt, you need to pay it off pronto. This is personal finance 101 (although not likely not the first thing you think you would do with a million dollars.)

I like to think if you have $1M you have good finance practices. Who knows though, maybe this is an inheritance or lotto prize, and you are coated in debt currently. Pay off the bad stuff before doing any more thinking.

Should you pay off every form of debt you have? Not really, but high-interest debt is horrible.

  • Second Mortgages
  • Auto Loans
  • Credit Cards

If you have any of these, pay them first. The sums shouldn’t be a huge amount but it hurts you A LOT because it destroys your credit and you pay about ~20% per year in interest on ‘bad debt’.

If you could find a consistent 20% return on your investments, people would kill to discover your secret. Killing off 20% interest is even better than a 20% return investment! You pay no taxes on your gains and it’s a GUARANTEED returns. Nice!

That’s an easy one! What’s next?

Step 2 – Make a Plan and Chill ($0)

I don’t know how you came upon your $1M but if you are stoked about joining the millionaire club, inexperienced with money, or dreaming about all the things you can buy – STOP! You need to protect your money from yourself more than anything.

What is likely the best idea would be to lock it away for 6-months until you can properly calm down and think about your future. Through friends, I have seen inheritances disappear and even worse destroy families. The best way to start is to lock it up.

Walk to your bank and ask for a 6-month CD for your money, it’s basically a savings account that you can’t withdraw from for 6-months. The payout isn’t amazing but that’s ok. It’s not what we are doing this for.

Now with the time you’ve created you have to do something incredibly important.

Make a plan

Part of any good plan is measurable results. That means starting to track your finances. There are different ways to do this, but what’s important is that you track where your money goes and how well you are moving towards your long term goals.

I like graphs. If you have a nice graph, that might make all the difference between using your money for a great life vs one great year.

Step 3 – Fill up your tax-free accounts & Employer matches ($40K)

So this is likely the least sexy step of the whole event. It’s no real estate investment or fancy deal.

Just fill up your tax-free investment contribution room and your employer 401K match if you have one. Is it exciting? No, it’s related to taxes. Blech. But it’s VERY efficient so it’s a great idea to do!

Let me show you some quick numbers:

  • Employer matches are often 50% top-up on 5% of your salary.
    • Whatever the amount is, you just made a 50% return year one. AMAZING!! Look at you Mr. SavvyFinance!
  • Tax contribution room is typical $19.5K/yr.

Yeah, I know taxes and tax-sheltered accounts sound complicated but investing is very easy and the exact type of account is less important than just using something.

If you want to read a dry article from someone else about the best tax-sheltered accounts. This is a good one!

A quick tip: I marked this as a $40K investment but you can only contribute $19.5K! Make next year’s contribution on Jan 1 next year to really max out your benefits, and look at that. You have 2 years of contributions covered!

Step 4 – Invest in Learning ($10K)

You hopefully have an income right now. I say hopefully because like we discussed, you’ll have to keep working.

Know what you don’t have to do though? Work the same drag of a job you’ve always had. For most people, they get their first job and plot a career up the ladder in that random field, never questioning if it’s what they really want.

Not you though!

You have a million dollars, you now have the power to start having some powerful impact on your happiness. You have enough money that you can make it work for you, instead of the other way around.

The easy way to change your life’s direction is to learn something that can change your career. If you have a job you can start by taking a course and becoming a highly paid specialist in your field.

A recent example of this: One of my employees wanted to become a technical specialist, which was a logical extension of his job. He took 2 courses from Udemy and read a textbook (using his money!) before he asked me to support his growth in that direction. I sent him to a conference and before too long gave him a 10% raise. Even better, he gets to focus on the part of his job that he liked the most. Win-win for everyone! Udemy courses are a cheap way to figure out if you enjoy a topic. Plus you learn a lot on the way!

If your job on the other hand is already awesome there are some great things to learn on the side that can take your life from great to uber-fantastic.

I owe where I am today to my real estate investments and would hands down recommend everyone gives it some thought. But I wouldn’t take it lightly.

Houses are expensive though, and making a mistake is painful so I recommend learning about it before taking the plunge.

Course Recommendation: Because of this I searched high and low for the best rental real estate course to recommend. Then negotiated an insane discount for my readers! Check out my review here!

Or you have the itch to fly solo and start your own company?

That’s actually the most profitable thing ever! If you can make it work out so by all means, use this opportunity to launch your entrepreneurial life with a course.

Starting a company is HARD so spending a bit on a course can let you skip years of effort. (I’m currently test-driving some so stay tuned!)

Step 5 – Take advantage of your amazing credit ($0)

People don’t talk up the advantages of amazing credit very often. Is it an investment? Not in the normal way of thinking about it, but once you have put the money into paying off your bad debt and have cash around, your credit is suddenly amazing.

You can use that to get better credit cards which will earn you more money with higher rewards or cash back and you can get better loans from banks for your mortgage or student debt.

Ah, the perks of being rich.

A Real Example: My wife has bad credit (mainly because she has zero income). She can’t get a good rewards credit card. She had a card that averaged 0.5% cash back. I have stellar credit, and get about 2% cash back from my card. We spend $2000/mo on credit, so blamo, I get $40 a month just for having good credit, and my wife uses my card. Does it count as an investment? My wife tells me it does.

Even better, if you have student debt, you can refinance it to an amazing rate if you have great credit. AND companies will even give you huge wads of bonus cash to sign up with them!

Student Loan Refinance Recommendation: I like CommonBond because they have the best rates, give you up to $550 of cash on signup, have unlimited-no-fee-prepayment privileges, and are also VERY charitable! They almost make student loans… nice.

Step 6 – Emergency Funds ($25K)

This is quick.

Obviously, the best thing you can do with your money is to INVEST IT. And we’ll get to that. But you can’t go all-in with being an investor if you fear ending up on the street.

The solution? Have an emergency fund or safely invested money. Mine is in bonds, but it doesn’t really matter as long as it’s safe.

How much? I recommend 6-months of living expenses if you have a job and 18-months of expenses if you have checked out of the working world like I have. Then you’ll really have nothing holding you back.

Is it Really Possible to Save One Million Dollars?

According to Fidelity Investments, the answer is absolutely, positively “YES!”.  For example, the number of 401(k), IRA, and Thrift Savings Plan (TSP) millionaires is setting all-time records. So, if other people can save one million dollars or more, it’s possible for you too.

Here are 8 totally realistic ways to save one million dollars much faster than you might imagine, even if you don’t know a lot about personal finance:

1. Choose the right college degree. 

Careers with the highest median salaries include being a pharmacist, actuary, economist, information security analyst, and petroleum engineer. When you work in an industry that values what you do, your chances of being unemployed are also significantly reduced.

2. Start saving and investing early. 

If your employer offers a retirement plan, maximize your contributions to take advantage of pretax investments that can boost your annual return. If you’re self-employed, you can do the same thing by setting up a SEP IRA.

3. Maintain a good credit score. 

Your credit score doesn’t have to be perfect, but remember that the better your score is, the greater the odds are that you’ll qualify for low-interest rates. Lenders consider a FICO Score of 740 or more to be very good, while 21% of Americans have an exceptional credit score of 800 or above.

4. Use debt to your advantage. 

There are two types of debt – good debt, and bad debt. Bad debt includes paying interest on credit card balances or borrowing money to go on vacation. Debt can be a good thing if it allows you to invest, for example by taking a  low-interest student loan (assuming you choose the right degree) or wisely leveraging it to finance income-producing real estate to invest in multiple properties instead of just one. 

5. Buy a home.

Another potential good use of debt is buying a home to live in instead of renting from someone else. Owning your own home can grow your equity so that you have access to future investable cash with a cash-out refinance. According to the Federal Reserve, median sales prices of homes sold in the U.S. have increased by almost 200% over the past 20 years. 

6. Invest in assets when they are cheap. 

Investors who buy and hold for the long term take advantage of normal down market cycles to buy assets when they’re relatively inexpensive. 

Real estate investors who bought houses during the Global Financial Crisis of 2008 have seen their home values grow by more than 50%, while buyers of the S&P 500 who added to their portfolios during the recent dip have seen share prices rise by nearly 60%.

7. Create multiple income streams. 

There’s no rule that says you can only have one source of income. The good news is that there are plenty of ways to make more money without having to hold down two full-time jobs. 

Owning dividend-paying shares of a publicly-traded REIT or real estate mutual fund, starting a part-time business by working a side gig that you love, or renting out extra space in your house are three easy ways to generate streams of income that put you on the path to making your first $1 million.

8. Invest in real estate. 

Extremely wealthy people such as John D. Rockefeller and Robert Kiyosaki say the #1 way to make money and build generational wealth is by investing in real estate. Real estate investments can provide reliable passive income, appreciation over the long term, and IRS-approved tax benefits that other assets simply don’t offer.

There Are Many Ways to Invest $1 Million

There Are Many Ways to Invest $1 Million

The good thing about reaching the $1 million mark is that it gives you plenty of investment options. But the basic investment objectives are the same as if you had a much smaller amount of money. You’ll still want to develop the best combination of growth, income, and capital preservation. It’s possible to do, but it requires diversifying your funds. You’ll need to decide the best investments and best accounts for you.

Tags

Leave a Reply

Your email address will not be published.