This was a question posted by another blogger @http://sgboleh.blogspot.com/2010/09/what-will-you-do-with-1-million-dollar.html
This is what I would do with the $1million dollars.
When you come into the money, refrain from spending it on frivolous items you yearn for(Audi) or your family desires (holidays) with the money. These are expenses, you whittle down your money just like that? Poof... memories are forever, but it is only for once. What if you could repeat the memories for many times more?
Use "Delayed Gratification" instead.
Instead of thinking of how to spend the money, think of how to make every penny of the money work for you. Your business is a good idea (you mentioned $100k?). Though, would the business be able to break even or make a profit in the first year. What is the probability - calculate that. Now, what is the probability of getting a 4-5% yield in a year thru' investing? Is it higher? If after you assessed the probability and find the business to be more highly probable (your own confidence and knowledge of the business model and environment), then go ahead and plonked some money into the business.
However, if you think the probability of getting 4-5% yield on your stocks or bonds or properties are higher, then probably, you should put spread the money out into investments that yield 4-5%. After a year, you will get $40-50k. Why not use the $40-50k to start your business then in the first year.
For the family holidays, delay the gratification till the 2nd year, where another $40-50k, comes in.
For the audi (a "selfish" toy for only 1 person to enjoy :p ), you should delay the gratification till your investments are showing results more or equal to the costs of the car. That is, if you made $130k on your principal, you buy the car (but i would still use a 50% car loan.. that is just me as I believe the $65k balance can be invested and reap more than the interest on the loan).
What I do for my own portfolio is the same. I forbid myself from touching the principal and delays gratifications of all "desired but not needed" items till my portfolio generates enough for me to afford them. Any excess is re-invested to make more money for me to enjoy more passive income the year after (which indirectly increases my budget for gratifications I delayed). Of course, it is even better if you can delay the purchase of the items indefinitely and get more capital to invest.
Summarizing what I think people who come into the money should do : Learn to invest for yourself and Never ever touch the principal for spendings classified as expenses. Delay the gratifications till your profits on the principal is enough for the "desired but not needed" items and you will get a more sustainable way of creating more loving memories with your loved ones.
Monday, October 4, 2010