I keep seeing this photo and this question pop up on the Oh Glorious Master Internet. Yet every time I ask my friends, family, or whoever is sitting next to me what they would do... They seem so conflicted. They have no idea.
For me, the answer is simple. I would take the Instant $1 million. Why? Because think about what you could do with "just" $1million!
For me, the answer is simple. I would take the Instant $1 million. Why? Because think about what you could do with "just" $1million!
My fantasized ideal situation is as follows:
I would Smack that Instant $1 million button with all the surety of a young woman with a plan. I'd cash in that cheque with the biggest sh*t-eating grin on my face, and then I could go buy a house in cash.
I currently pay $950/month in rent for two people under one roof. Now if I bought a house with no mortgage, flat cash, all said and done, I have now cut my monthly housing expenses to around and about less than half (property tax, utilities, insurance).
By hitting Instant $1 million I have just saved money totaling about $5000 - $6000 per year.
Ok, but then what? You bought a $1 million house? HECK NO! (Are you nuts?)
I would have spent a maximum of $500,000 on a home on the outskirts of the city -- but on a transit line. Why this crazy requirement? It's not crazy at all.
Didn't I mention that I have $200,000 left over (after I put $300,000 into investments, of course) to remodel my basement and turn my home into an income property? Did I forget to mention that?
So say I spend the entire $200,000 because my basement is a) unfinished and b) has no plumbing built into it. Those are both major expenses and could realistically eat away at that $200,000 budget before I've even blinked twice. But I digress. The fantastical basement income rental is now complete, shining, homey, has big windows that let light in, and its own lovely separate entrance. (Oh, and the make-believe shared laundry is pretty fantastic, too)!
I now have a fully paid-off home costing me $500/month (for the sake of argument) and a fully-loaded, ready-to-rent basement apartment waiting to go on the market.
Now say it gets rented. I'm on the outskirts of the city, but I am on a transit line (or at least close to one). The neighbourhood is good, and there are amenities such as groceries, a gym, and/or a mall nearby. Win! This all adds up to one thing: top dollar rent.
Since I have been in the rental situation, I don't want to be greedy, but I want to be realistic, so I charge $1,000/month with utilities included. Arguably the renters are a small family and they rack up utilities of $400/month. Ouch. But guess what? I still have $600/month pocket money from this income property. And guess what else? That covers my $500/month housing expense. I now make $100/month + I have $300,000 sitting in investments making an idealized 4% per annum and giving me a total of $24,000 /year income ($12,000 from the rental and $12,000 from investment gains).
But wouldn't $100 million be so much better than a measly $24,000 per year?
Of course it would. But frugality and a history of financial loss and hardship means that 50% chance isn't good enough for me. I would much rather take that $1 million and make something of it.
I would add $500,000 equity to my name instantly. I would make $24,000/year (and with no housing costs, that means I could easily live off of that $24,000/year and never work a day again.)
Actually! On that above note, My current living expenses are budgeted to a sharp $1500/month.
In my fantasized situation, I can totally strike out that $950 so my expenses would now be $650/month or $7,800/year. That's just over one quarter of my new Instant $1-million's $24,000/year income. Say I live dangerously and round it up to $10,000/year in expenses. That means that I now have $14,000 to reinvest into my $300,000 to make me more money. Every. Year.
*squeal*
Excuse me while I go drool over this never-going-happen fantasy that ignores the existence of income tax.
(What would you do if faced with this decision?)
I would Smack that Instant $1 million button with all the surety of a young woman with a plan. I'd cash in that cheque with the biggest sh*t-eating grin on my face, and then I could go buy a house in cash.
I currently pay $950/month in rent for two people under one roof. Now if I bought a house with no mortgage, flat cash, all said and done, I have now cut my monthly housing expenses to around and about less than half (property tax, utilities, insurance).
By hitting Instant $1 million I have just saved money totaling about $5000 - $6000 per year.
Ok, but then what? You bought a $1 million house? HECK NO! (Are you nuts?)
I would have spent a maximum of $500,000 on a home on the outskirts of the city -- but on a transit line. Why this crazy requirement? It's not crazy at all.
Didn't I mention that I have $200,000 left over (after I put $300,000 into investments, of course) to remodel my basement and turn my home into an income property? Did I forget to mention that?
So say I spend the entire $200,000 because my basement is a) unfinished and b) has no plumbing built into it. Those are both major expenses and could realistically eat away at that $200,000 budget before I've even blinked twice. But I digress. The fantastical basement income rental is now complete, shining, homey, has big windows that let light in, and its own lovely separate entrance. (Oh, and the make-believe shared laundry is pretty fantastic, too)!
I now have a fully paid-off home costing me $500/month (for the sake of argument) and a fully-loaded, ready-to-rent basement apartment waiting to go on the market.
Now say it gets rented. I'm on the outskirts of the city, but I am on a transit line (or at least close to one). The neighbourhood is good, and there are amenities such as groceries, a gym, and/or a mall nearby. Win! This all adds up to one thing: top dollar rent.
Since I have been in the rental situation, I don't want to be greedy, but I want to be realistic, so I charge $1,000/month with utilities included. Arguably the renters are a small family and they rack up utilities of $400/month. Ouch. But guess what? I still have $600/month pocket money from this income property. And guess what else? That covers my $500/month housing expense. I now make $100/month + I have $300,000 sitting in investments making an idealized 4% per annum and giving me a total of $24,000 /year income ($12,000 from the rental and $12,000 from investment gains).
But wouldn't $100 million be so much better than a measly $24,000 per year?
Of course it would. But frugality and a history of financial loss and hardship means that 50% chance isn't good enough for me. I would much rather take that $1 million and make something of it.
I would add $500,000 equity to my name instantly. I would make $24,000/year (and with no housing costs, that means I could easily live off of that $24,000/year and never work a day again.)
Actually! On that above note, My current living expenses are budgeted to a sharp $1500/month.
- $950 rent
- $200 food & hygienic purchases
- $100 electronic bills (phone, internet)
- $100 public transit pass
- $150 dining out, movies, new clothes, etc.
In my fantasized situation, I can totally strike out that $950 so my expenses would now be $650/month or $7,800/year. That's just over one quarter of my new Instant $1-million's $24,000/year income. Say I live dangerously and round it up to $10,000/year in expenses. That means that I now have $14,000 to reinvest into my $300,000 to make me more money. Every. Year.
*squeal*
Excuse me while I go drool over this never-going-happen fantasy that ignores the existence of income tax.
(What would you do if faced with this decision?)