What would you do if one million dollars suddenly landed on your lap tax free? I can list down all the things I can buy and spend it on but here’s another question you might not have thought of: How would you make One Million Dollars Grow?
I’ve read so many stories about successful people starting out with little more than a few dollars and had turned it into fortunes. What if you could start with a million? Would you have it easier? Could you turn it into five million, maybe ten or even a hundred? How would you do it?
I have been reading about Chinese culture lately and their method for investing struck me. The Chinese have a simple rule of what to do with a sudden windfall of cash that somewhat makes sense. If I had a million dollars today (tax free), I would follow these steps:
10% = Fun Money
Fun Money is simply spent on anything you want! $100,000 sounds like a lot of fun! I would buy the Mercedes Benz that my wife and I have always wanted. It’s an E Coupe. That would probably knock off half of my fun money right there. (sniff.sniff) The rest I would spend on paying debt (credit cards, car payments etc.), also making the necessary repairs, modifications and upgrades on my home and travel time with my family.
20% = Low Risk-Low (to medium) Return Investment
A low risk- low (to medium) return investment is an investment wherein there is a high capital needed but the ROI (Return of Investment) will be on a ‘slowly but surely’ pace. Within these lines I may venture into a string of franchises (food with good brands) or buy some real estate (land, apartments, etc.) which provide monthly checks and keep the investment at an appreciating rate. The goal here is to make a safe investment. There are no guarantees on anything but these investments are considered less risky.
10% = High Risk to High Return Investment.
This investment is simply a high risk endeavor with a potentially high return. They can be joint ventures with partners to form a company that pushes a new and exciting high potential product into the market, put up a new restaurant, etc. This can also be used as funds for being a venture capitalist for entrepreneurs with great ideas but are low on capital. On the other hand, if a good opportunity has yet to come along, the money can be used to invest in the stock market, mutual funds or bonds but the case should be that it can be liquidated in a short period of time when the right opportunity presents itself.
60% = Savings / Sleeper
Finally, $600,000 would be put to work through bank time deposits, CD’s etc. The interest earned would be a nice pay off. It can be appropriated to more savings or to finish up mortgage payments. The important thing is to let this huge chunk of money work for you. Can you imagine having $600,000 working for you while you relax? =) I would hire a financial planner that can present to me a host of safe investment vehicles with good interest rates.
So out of a million dollars, 60% is intact and growing, while the other 30% is invested and already working for you. There are checks coming in month on month without you having to really work hard for it. This is called passive to semi passive income. For me it is the right way to not just live life but to actually enjoy it.