Sometimes it’s important to dream a little. Not only can it keep us motivated in the midst of slogging through debt repayment or through school or through a period of job-hunting, but it can also tell us a lot about ourselves. Haven’t we all wagged our heads slowly when we hear of some lottery winner who completely destroys her life because she goes crazy after winning so much money?
Well, how do we know that wouldn’t happen to us?
So one day I thought I would do a little “thought experiment” and imagine if Deb and I woke up with $1 million. What would we do with all that cash? We had a fun little discussion dreaming about this and these are our answers.*
The 5 Things We Would Do and Why
- Give 25% Away (-$250,000) – We would hold to our commitment of giving 20% of any income to church and charity. And increase it by 5%. We wouldn’t stop to negotiate or to rationalize with ourselves, because this is an incredible workout for our generosity muscle. We need this training because if we’re not willing to give $250,000 out of $1 Million, we’re not going to be hardcore enough to give $2.5 Million if we had $10 Million. Besides, it’ll be totally amazing to be able to give away a quarter of a million dollars!
- Pay Off The House (-$45,000) – As we mentioned in our post commemorating our 1-year homeownership anniversary, we are about one year away from paying off our home mortgage. This may not be the highest yielding investment opportunity, but we value the peace of mind of being completely out of debt and also the significant decrease in our monthly expenses. (If we had any other types of debt, paying them off would fall right into this step as well.)
- Max Out Our Roth IRAs (-$11,000) – We actually wouldn’t qualify for Roth IRA contributions if we got $1 million because we would be above the max allowable income level, but this is where we would park the cash if we could. Roth IRAs grow tax-free, which is a huge savings if the account grows significantly over the next few decades. We would put the cash into a Traditional IRA as a secondary option to at least defer taxes to a later date, or switch to a Roth down the road.
- Replace Gas-Guzzler With a Used Electric Vehicle (-$20,000) – One of the most non-crumb-saving aspects of our lives right now is the vehicle that we drive: A thirsty Honda Accord V6 that averages 22-23 mpg. I know. It’s downright pathetic. To remedy our hypocritical ways, we would invest in an electrified vehicle of some sort. Since we’ll still only have one car, we won’t be able to get by with a limited range EV like the Honda Fit EV or Nissan Leaf, nor would we be able to justify the high price of a Tesla Model S (Alas! Can’t escape my own frugal logic, even in my dreams), so we’ll be looking at a plug-in hybrid vehicle like a Honda Accord Hybrid Plug-in or Toyota Prius Plug-in. (Of course, we’ll buy used.) By my rough estimates, this would save us at least $1000 in gas a year. Also, because our solar panels generate surplus power, by employing proper route planning and recharging, it’s conceivable that we could practically drive for free. (With clean, renewable energy to boot!)
- Invest for Passive Income (-$674,000) – All the remaining money would be invested for passive income. This would be in a diversified portfolio consisting mostly of index funds, real estate, and peer-to-peer lending. Assuming a healthy rate of growth and using the safe withdrawal rate of 4%, this principal would throw off nearly $27,000 annually for us to live on. This is more than our current level of annual spending, so we would essentially be able to retire. But we wouldn’t retire in the traditional sense of the term. We’d just utilize that freedom of not being dependent on the paycheck to make our lives more beneficial to the world. Deb could stay home and raise kids if/when we have any–or we BOTH could! We could volunteer our time for the causes that we believe in, without the need to get paid. Or we could just give even more money away to worthy causes. The point is, instead of stuff that decreases in value, this windfall would buy us freedom to do what we feel is most valuable.
How About You?
I know that at one point earlier in my life, I probably would have blown the entire million dollars on consumable stuff that would have been a complete waste. (Fancy cars! Shiny gadgets! Expensive trips!) Now, I find so much more satisfaction in saving the money, putting it to work, and creating a future of freedom to pursue what’s most important in life. In other words, the $1 million wouldn’t change our course much other than pushing us faster toward the direction where we’re headed already.
What about you? Try thinking it through, writing it out, and discussing with your spouse what YOU would do if you woke up with $1 million. Taking the time to dream a little may show you a great deal about yourself. (You may discover yourself to be just as nutso as the lotto winner who went cuckoo, in which case you should seek help.) It can help crystalize your priorities, paving the way for a clearer game plan to attain your dreams.
So what would YOU do if you had $1 million?
*We’re assuming this is $1 million post-taxes. Not realistic, I know. Don’t get on my case for DREAMING, all right?!
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