Big money planning

What would you do if you won a million dollars? Or even had an amazing stroke of luck and picked up $100,000?! Splurge? Invest? What would you do with it?

When I was left a significant sum of money a few years back I had to take a real moment to sit back and wonder what the heck I was going to do…. it would be easy to spend up big and get a heap of crap, but we all know that material items don’t bring happiness. In fact, I find them to be increasingly burdensome – especially if they are an expensive item that requires care and/or maintenance beyond the norm. So what to do with that money? Let’s think together of some options:

• Invest in shares
• Invest in property
• leave the money in the bank
• invest in a new venture (business or other)
• buy gold
• hide the money (or gold) under the bed
• spend like a mofo

I wonder if I’ve missed any here… I know that when this happened to me, I invested in real estate – buying my first investment property from my brothers. I purchased this as a 100% loan, keeping the cash I’d inherited and for the short term putting it into the mortgage (accessible via a redraw facility). This worked well, but eventually I spent a fair bit and I look back now and wonder – if I’d had a plan, could I have done it better?

Yes. Definitely yes. So what would I do if I acquired in some way $100,000? Here’s a few ideas: I do have two mortgages at the moment so I will need to address those. In fact, $100,000 will almost pay one out completely – but that puts all my eggs into one basket. I’ve heard the phrase asset rich and cash poor – I’d prefer to avoid that. No cash makes it hard to do repairs/upgrades/other investments. Additionally, with the stock market in free fall it’s a good time to buy – there are a lot of great and now cheap shares out there from companies that will be around and pay good dividends. So three main areas for me:

• Some into stocks – say 25% of the amount
• some into cash – 10% of the amount
• and some onto the loans / debts I have – remaining 65%

The additional benefit of this plan is a minimisation of spending on non-essentials and keeping those little dollars working. No slackers in my house! The cash can stay in an account (earning some pitifully low amount of interest) but available to me for expenses. Because I’ve used percentages then it can be applied to a wide ranging amount of incoming cash.

Let’s up the ante – what if I suddenly come into a million dollars?! Those percentages aren’t going to hold necessarily true – more money opens more opportunities to use it and to find more interesting ways of doing that. So with a million bucks I’d probably:

• Pay out loans (become debt free) – first priority
• make a substantial investment across new stocks / index funds
• money into cash reserves
• potentially invest in another rental property – I would eventually like to have $1000 / week in rent coming in.
• maybe replace a motor vehicle at home with something better (more efficient/safe/comfortable)

I haven’t included exact figures – they will be time dependent. The list is top to bottom in order of preference for spending. The top two items are money earners over time, the last two are (initially) costs. The last item is an ongoing cost with little chance for recovery.

Thanks for joining me on this thought experiment. If you had a $1,000,000 arrive in your account tomorrow – what would you do with it?