Powerball/lottery fever has been going around lately. Recently a group of people won the $448 million Powerball jackpot. Good for them. I hope they use their money wisely and in a way that will benefit their families and communities for years to come. This got me thinking on what I would do with a big windfall. Getting $448 million would be nice of course but there would not be much thinking involved in how to spend it because that amount of money would erase all of the debt we have and leave us with more than we would know what to do with.
So I thought about how to spend a large sum of money that would still require some planning. I also wanted to assume I would continue working and making the same salary I am now. I thought $1 million (after Uncle Sam’s bite of course) would be a good place to start, so here are the top 5 things I would spend it on:
- Student loans. This is a no-brainer for me as my student loan payments currently total $1200 a month. Getting rid of these debts alone would be enough for me. One thing to consider would be paying off the higher interest loans only as I do have some loans around a low 2% interest rate. I could instead invest this money in an index fund and most likely make more than a 2% return. There is also the maximum $2500 tax deduction from paying student loan interest. But I’m leaning towards the huge psychological and income boost of getting rid of all the loans. This would cost me around $140,000 leaving $860,000 left to spend.
- Siblings’ student loans. Took me a little while to decide on this one because I wouldn’t know what to do with my life after student loans! I decided to pay off my siblings’ student loans because having a family free of debt will help everybody and their loans aren’t anywhere near the value of mine. Around $100,000 or so between all 3 of them. And also I think this would be a much better gift than the inevitable hitting me up for cash requests. This would free up money for them for the rest of their lives! This would leave $760,000 to spend.
- Charity. Now that the family house is in order, I would give a healthy amount towards charity. I’m not exactly sure which charity but the problems that are dear to my heart include people going hungry and people getting sick and dying because of poor living conditions. So it would likely be a good charity for one of these causes. I would also like to give back to my community in some way. I would spend around $100,000 for this, leaving $660,000 to spend
- Invest. With over half a million left to use, I would then turn to investing. I currently have a Roth IRA with Vanguard and a 529 with the state of Maryland. I would focus on these since I’m already contributing up to the match in my company’s 401k. The Roth IRA would get most of the pie because of much lower expense ratios and superior investment choices. I would invest $300,000 in the Roth IRA and $100,000 in the 529, leaving $260,000 to spend.
- Mortgage. I’m actually not too worried about getting rid of the mortgage completely since eliminating student loan debt will free up more than enough money. Also I don’t believe in tying up too much wealth in a house because townhomes (which is what I have) don’t generally appreciate as much as typical single family homes, and it would be a pretty illiquid place to keep the money. I would still like to build some equity though and have a nice down payment to use upon selling the house, so I would put $220,000 towards the mortgage, maybe using it to build some improvements on the house as well.
Wait I still have $40,000 left to spend? Guess my education wasn’t that great after all. Seriously though, I think it would definitely be a good idea when receiving a windfall to leave some money to spend on yourself. Always wanted to go on that African safari or European tour? Ever wanted to buy that luxury car and not have to worry about a monthly payment? This is what I’d use that remaining $40,000 for because sometimes you just need some money to spend on whatever you want. Personally I would use it for vacation or three since I’m not really into fancy cars.
Well now that my million is gone, I would say I’m in a very good financial position. Student loans paid off for me and family, healthy investment accounts, good amount of equity in the house and some fun vacations ahead. Not bad at all. What would you spend a million on? Please comment below and share the wealth!