Getting the Most out of Financial Success
posted under
money
by Kalyn Cybulski
Wise Bread's Will Chen asked this question - what would you do with a million dollars (tax free)? Although a million dollars does not account for much these days, especially if it is in American funds, a financial windfall of this size would still present plenty of opportunity for a more stable, secure lifestyle.Financial planning often revolves around frugality and trying to stretch every dollar to its fullest. Because there is such a significant focus on saving our money and getting the best deal, the concept of a cash windfall or too much money is rarely addressed. Because no one really plans for having more money than they need, there are often situations where a person will make frivolous purchases because he or she has no idea what to do otherwise.
Imagine if you won the lottery tomorrow? Would you blow your newfound wealth on a new home and a tonne of toys or would you feel guilty and keep all of the money with no intention of spending it? The key to managing financial success is finding a balance with your needs and your wants, but continuing to think responsible and intelligently about your spending. The following tips can help you manage your money in a situation where the need for a budget can disappear.
- Think About The Future. Remember that even though your financial situation has improved, your cost of living has not increased in a similar way. Think objectively - if you can now afford a new home, should you get one that costs three times as much as your current home and will be three times more expensive to heat and furnish? Will this financial windfall last as long as your mortgage payments? With every major decision you make, think about the consequences 1 year, 5 years, 10 years down the road and beyond.
- Save a Little. Your monthly expenditures have likely not increased to match your new income and you will have a little extra cushion to work with. Put at least 3 months (but ideally 6 months) of money to cover your expenses into a savings account in case of emergency. If you can, put a little more into your savings for retirement or other financial obligations that might come in the future.
- Spend a Little. You should not feel guilty about spending your money, especially if you have taken the opportunity to save for the future. When spending, you will get the greatest satisfaction from focusing on quality over quantity. If you've always wanted to take a trip, consider doing it sooner than later! If going back to school is your plan, there is no time like the present. Take your long standing goals into account and focus on getting the most enjoyment possible from your money - as they say, you can't take it with you.
- Keep the Rest and Stop Worrying. Keep the rest of your money flowing through your accounts and don't worry about it too much - spend what you need to spend and save what you need to save. If you have money management issues, consider working with a planner to develop a budget and financial strategy to suit your needs. By maintaining a large balance in your accounts you will generate passive income through your interest, or by investing your money you might have the opportunity to increase your investment substantially. The more you allow your money to work for you and the less you think about it, you will encourage yourself to continue living within your means and develop a substantial nest-egg in the process.
- Share the Wealth. Consider using your extra money to free up time for volunteering or donate a little to a cause that is important to you. Whether you use your money directly or indirectly to benefit others, you will feel better connected to society and create positive experiences for both yourself and others involved. See your money as an opportunity; an opportunity to do good in the world and an opportunity to further yourself and your beliefs.
- I would build my sustainable/off-the-grid farm and "little green house" outside of the city, furnished and ready to go (down to $700,000)
- I would fix up our current home (down to $650,000)
- I would sell our current home (up to $925,000)
- I would pay off our car lease (down to $906,000)
- I would help my boyfriend finance his business - either now or in the future by putting money aside (down to $656,000)
- I would utilize the "Couch Potato" investing method, with an expected return of approximately 10% annually, the interest essentially paying equivalent to my current wages (down to $306,000)
- I would pay off our debts (down to $296,000)
- I would build our emergency fund (down to $276,000)
- I would "max out" our retirement savings (down to $216,000)
- I would put a chunk of money aside for raising our family (down to $116,000)
- I would donate a chunk of money to the rescue center where we adopted our Great Dane (down to $100,000)
- I would send all of Chris and my parents on a vacation (down to $60,000)
- I would develop and market my personal organization consulting business (down to $40,000)
- I would finance our wedding and throw a fantastic party for everyone we know. This would be including a great honeymoon to Ireland, France, Greece and Italy (down to $15,000)
- I would leave the remaining balance in my bank account. :)
I also planned to invest enough that I could feasibly live off the interest for my own current salary - although it is modest, it is enough to get us by at this point and I think we would ultimately have less to spend in our ideal life. In my opinion, this is a good balance of spending, saving, investing, and essentially getting the most out of financial success. What do you think - how would you spend your million?
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