Pretend You Have $1,000,000 — Now What?
By: Rocco Pendola
Tags: Personal Finance, Money, Saving, Investing, Retirement

Pretend You Have $1,000,000 — Now What?

Photo by Toa Heftiba on Unsplash

Although I resist the urge to focus on accumulating $1,000,000, it sure would be nice to hit that number.

If I get to a million bucks, I can picture myself — in the words of the Old 97's —

drinking rye whiskey and sleeping till 2 on a warm afternoon

more than I do now. But the reality is, I probably won’t. In fact, if I ever get to a million bucks, things might not change all that much. This is one of the principles at the heart of not focusing on the million-dollar magic number we popularly attach to retirement. For an increasing number of us, traditional retirement is no longer a thing anyway.

In response to my recent Medium article about how “easy” it is to amass $1,000,000 by investing $1,000 a month for 20 years, Andy Taylor said:

This is a great question.

Does a life of relative frugality mean you won’t know how or why to blow through your million dollar nest egg?

It’s not like winning the lottery, getting a signing bonus, or securing a record contract. You didn’t fall into a bunch of money after a bunch of, presumably, hard work. Instead, you worked, focused, and compromised really hard over how many ever years it took you to get to $1,000,000. So your context — and subsequent action — probably won’t look like it would have had you received a windfall.

Which is probably good.

When I think about receiving a windfall, I start talking stupid. Here’s a rough sketch of the stupid I talked last time I daydreamed about having $1,000,000 fall into my lap:

I’ll pay for four years of my college for my daughter — $200,000

I’ll set aside money for one year of living expenses — $36,000

I’ll pay off my car — $5,000

I’ll make a significant contribution to my dividend stock portfolio — $500,000

I’ll donate the rest.

You know you do this. It’s a fun exercise. But it’s also sort of dangerous.

Making plans to spend money you don’t have before you have it. While a naturally human thing to do, it’s probably something those of us who riff on personal finance should warn against more than we do.

If you take years to build a house, you’ll likely do one of two things with it when it’s finished. You’ll live in it, or you’ll rent it out. This is sort of how that million dollars you accumulate via investing ought to act. Let’s think about it.

Making plans to not spend — but effectively and efficiently allocate — the $1,000,000 (or whatever number) you’re pretty sure you’ll have one day. This is sound personal finance.

Here’s how I imagine it might look the morning I wake up and see I’m in the two-comma club (if you get the inspiration for that reference, I love you).

First, I’ll probably temporarily fall out of the two-comma club. I can imagine dipping below $1,000,000 — to like, say, $999,964.22 or something — numerous times. At some point, after more dividend payments come in and I reinvest them, I’ll probably see things stabilize north of $1,000,000.

Second, I hope (knock on wood) I’m doing what I have said I plan to be doing in countless Medium articles — working. If this ends up my reality, I’ll probably look at the number in my investment account and be like, “sweet.” I mean, I’ll obviously have seen it coming, right?

$450,000.

$750,000.

$900,000.

$950,000.

Almost a million.

It won’t be like a million dollars did a sneak attack. Not for a guy who refreshes his investment account multiple times an hour. I have a halfway decent idea of where I stand.

Third, I’m not saving/investing to get to a million dollars or something like it merely to spend it. It’s part of a multi-faceted personal financial plan that never really ends. I believe in allocating income in such a way that you can achieve financial flexibility long before you reach or without ever hitting $1,000,000.

So you’re already meeting your needs — fixed expenses, discretionary spending, saving directed to various pots of money, investing in dividend stocks — with your present cash flow. When you get to this critical, even if symbolic signpost in your investment account, hopefully, you’ll be in a position to comfortably live in the house you built (use your nest egg to live in full or part without or with less income from work) or rent it out (continue reaping the benefits of reinvesting dividends/accumulating stock).

Bottom line — I’ll still need to live. So that $1,000,000 either sits in a combination of savings and dividend-paying stocks, or it goes to partially or completely meets my living expenses if I decide to stop working. In some ways, reaching a million bucks might end up a sort of ho-hum, anti-climactic event. I’ll be proud, even excited, but it’s ultimately the culmination of a workmanlike effort to cement financial flexibility, and whatever retirement will look like for me.

If anything, I’ll do the opposite of spending $1,000,000. I hope to be in the position — financially and health-wise — to double down and set myself on the road to $2,000,000. Because, of course, the first million is the hardest.