by Damon Carr
For New Pittsburgh Courier
I recently shared an engagement meme on Facebook. The question posed was, “If you had $1,000,000, how would you spend your time?”
Following are some of the responses. “Same way I usually do, wouldn’t change a thing.” “Maybe get a slightly bigger house, drive a more modern car, live a little more lavishly. Nothing too extravagant.” “Still work and pay off student loans. Take vacation and finish a couple more degrees.” “I’d still work. Take more vacations.” “Watch that $1 mil turn into $2 mil.” “Try to figure out how to make a better life for my grandkids.” “I’ll spend my time working to build and grow my nonprofit holistic mental health care services.” “Invest and enjoy life.” “Pay off student loans, car and home. Work for myself.” “First I’d invest some of the money. Then I’d work 6 months, travel 6 months, and use extra time to work on my writing.” “I’d help homeless vets and homeless people as well as people with drug and alcohol problems.” “Open a Doggie Daycare and spend every day with dogs.” “I’d turn that $1 mil into $5 mil.” “Still work, become debt-free and continue to invest. Have some fun in the sun with family and friends (Caribbean home).” “Do fun stuff.” “Focus on my photography and help out my children.” “Thanking God!”
I believe it’s healthy to dream a little. This question forced people to sit back and think and dream, if money was a non-factor what are some things that are important to me? How would I spend my time? What expenses and bills are in the way of allowing you to live a more free, fulfilling life? What are my priorities? What can I do to serve and help others? How can I grow this money to benefit me, my children, my grandchildren, and generations to come? What’s some fun stuff that I can do? What are some cool places that I can visit?
As you read those words, did you think and dream a little? What would YOU do with 1 M I L L I O N dollars?
My childhood friend and high-school classmate Tiffany chimed in with a response. She replied, “I’ll go to work and take vacation at usual times. But they will be more lavish. Everything else would be the same. $1,000,000 isn’t enough to go crazy.” Wait a minute? What did she say? I’ll repeat, $1,000,000 isn’t enough to go crazy. Dream interrupted!
What is she talking about? Who says that $1,000,000 isn’t enough to go crazy? To heck with what she said, I’m going BUCK WILD with $1,000,000. Still can’t shake the thought of her words though. Damon, is she right? Is it enough?
Allow me to save you the suspense. She’s right. $1,000,000 is a ton of money. But it’s not what you think it is. Especially if you immediately adjust your lifestyle to mirror this newfound monetary success. Warning: You can spend $1,000,000 faster than you can spend $1,000. Think about it. When you have $1,000, you think within confined limits. You know that you can only get so much. As a result, you spend accordingly. If you had $1,000,000 at your beck and call to do whatever you want, whenever you want, however you want—you’re getting 10 of EVERYTHING and inviting friends and family alone for the ride. You’re going to go BUCK WILD! Sheesh…. What do you expect if someone who’s not accustomed to having $1,000,000 comes into that amount of money?
It happens with sports figures, entertainers, and other celebrities all the time. Many of them come from humble beginnings. Then they’re suddenly handed millions of dollars with no training manual. Many of them end up owing millions in taxes. Some find themselves bankrupt. Too many of these high-earning individuals squander through millions fast. Sadly, only a few create generational wealth. In case you missed it, they were working with more than $1,000,000…and BLEW IT. Guess you can say they went crazy with millions.
Why isn’t $1,000,000 enough to go crazy with?
Taxes: Uncle Sam, The dude in the Top Hat and funny colored suit. He wants his share. Let’s assume the person with $1,000,000 is single. We live in a progressive tax environment—meaning our tax rate starts at 10 percent for the first $9,000 we earn. The tax rate continues to rise as earnings increase. Earnings over $510,301 are taxed at the highest tax rate of 37 percent. On the $500,000 portion alone, taxes are eating up $189,000. There’s more. The first $500,000 was taxed at lower rates. Plus, you have the state and local taxing authority wanting their piece of the pie. That $1,000,000 looks a lot like $650,000 after taxes. You also want to get a good tax advisor on your team to help reduce the overall tax burden.
Agent/Advisor: You will not have an agent. If you come into that type of money, you’d certainly want a financial and/or tax advisor. Someone who will look out for your best interest and give you sound advice. Someone who will show you how to make your money grow and create generational wealth. This will not be free. Price can vary from a couple of thousand to hundreds of thousands to millions of dollars depending on the complexities of your financial situation.
Generational Wealth: Scripture says that a wise man leaves an inheritance to his children’s children. We all want to be wise with our money. Financial Freedom is owing no man or lender anything – debt-free. Financial Independence is having an asset base that generates income sufficient to cover lifestyle and expenses. Creating generational wealth is living off the interest generated by your assets and never touching the principal or selling off the assets. Thus, leaving an inheritance for your children and future generations to live off—assuming your children are not spendthrifts. A safe withdrawal rate from investment assets is 4 percent. This will allow you to live off the interest, cope with inflation, allow your money to continue to grow, and you never touch the principal. Assuming you invested $1,000,000 and you want to live off interest and create generational wealth, a 4 percent withdrawal rate is $40,000 per year. You’ll get a raise each year because the investments will grow.
Every $1,000,000 invested is worth a cool $40,000. That isn’t enough to go crazy with.
(Damon Carr, Money Coach can be reached at 412-216-1013 or visit his website @ www.damonmoneycoach.com.)