What to do with a million dollars? An Expert’s 9-Step Plan

What to do with a million dollars? Does that question still fill you with grandiose visions of gold, cash, and private jets like it did when you were a kid?
I remember that was a common question to ask your friends – What would you do with one million dollars? – and the brainstorming sessions were always LEGENDARY

Fast-forward to today, after cashing out some real estate investments, here I am staring at over 1 million dollars of investment money.

And for better or for worse, I didn’t follow through on the crazy goals of what I could do with that amount of money. I mean, if you can’t take your entire middle school and put them on a cruise ship like in Breaker High, then what can you do with one million dollars?

Lot’s of things!

And today, I will tell you not only what you could do with a million dollars, but more importantly, what you should do with 1 million dollars. Personal finance isn’t supposed to be complicated. So let’s have some fun on the way there too 🙂

If you are just on your way up to millionaire land, I recommend this article instead. It breaks out the best investments for any given amount of savings, just in case you’re not starting with $1M in the bank 😛

Today we’ll walk through:

Is one million dollars still a lot of money?

What would you do with a million dollars?
The dream was a lie. Having a million dollars just doesn’t carry the same weight you thought it did when you were a child.

If I listen to my Grandma talk at Christmas, a million dollars used to mean an insane amount of money. Then again, salaries were only a few thousand dollars and houses were worth like ten thousand.

Could you just retire off that money? Back then, hell yes! But nowadays you’d be constantly checking your bank balance and pinching your pennies to make it last.

Remember those good-old-days? I don’t either but I know they existed at some point.

Now, humble bungalows in my hometown sell for about $1.3M and teardowns are close to a million. One million dollars would really just buy me a place to live and probably not even a nice one.

This is a real place. Terrifying

Don’t get me wrong having a brand new house would be nice but I’m not going to quit my job just because I own a fixer-upper.

I would, however, say your life gets WAYY better when you are a millionaire. Can you live off it? Not really, but you can make sure you never have to worry about making rent again.
Or even better, you can start paying people to do things you don’t enjoy. If that doesn’t make you feel like a millionaire, I don’t know what will!

Are you still scoffing? Then let’s have a look at what would happen you if you were to just sit on the money instead of investing it.

What would you get from the bank with one million dollars?

Let’s say you put your $1,000,000 into your bank’s savings account and sat on it. People like to say they would live on their wealth’s interest. Let’s pretend you don’t know any better or maybe your risk tolerance is super, SUPER low.

Could you live off the interest? Nope! In 2020 savings accounts have an interest rate of around 0.6%. If you tried to live on that interest you would have to be living off of $6000/yr. Unlikely!

Even if you gave up on living off the interest and lived off the money itself you’d only be able to spend $36,000/yr and still run out of money in 30 years. That double sucks.

So what’s a person do to? Invest it, duh. Let me show you the right way to invest your $1,000,000.

Start with THE 5 SUPER efficient investments for one million dollars

Step 1 – Pay off BAD debt ($25K)

If you have high-interest rate debt like credit card debt, you need to pay it off pronto. This is personal finance 101 (although not likely not the first thing you think you would do with a million dollars.)

I like to think if you have $1M you have good finance practices. Who knows though, maybe this is an inheritance or lotto prize, and you are coated in debt currently. Pay off the bad stuff before doing any more thinking.

Should you pay off every form of debt you have? Not really, but high-interest debt is horrible.

  • Second Mortgages
  • Auto Loans
  • Credit Cards

If you have any of these, pay them first. The sums shouldn’t be a huge amount but it hurts you A LOT because it destroys your credit and you pay about ~20% per year in interest on ‘bad debt’.

If you could find a consistent 20% return on your investments, people would kill to discover your secret. Killing off 20% interest is even better than a 20% return investment! You pay no taxes on your gains and it’s a GUARANTEED returns. Nice!

That’s an easy one! What’s next?

Step 2 – Make a Plan and Chill ($0)

I don’t know how you came upon your $1M but if you are stoked about joining the millionaire club, inexperienced with money, or dreaming about all the things you can buy – STOP! You need to protect your money from yourself more than anything.

What is likely the best idea would be to lock it away for 6-months until you can properly calm down and think about your future. Through friends, I have seen inheritances disappear and even worse destroy families. The best way to start is to lock it up.

Walk to your bank and ask for a 6-month CD for your money, it’s basically a savings account that you can’t withdraw from for 6-months. The payout isn’t amazing but that’s ok. It’s not what we are doing this for.

Now with the time you’ve created you have to do something incredibly important.

Make a plan.

Part of any good plan is measurable results. That means starting to track your finances. There are different ways to do this, but what’s important is that you track where your money goes and how well you are moving towards your long term goals.

I like graphs. If you have a nice graph, that might make all the difference between using your money for a great life vs one great year.

one million dollars plan

Step 3 – Fill up your tax-free accounts & Employer matches ($40K)

So this is likely the least sexy step of the whole event. It’s no real estate investment or fancy deal.

Just fill up your tax-free investment contribution room and your employer 401K match if you have one. Is it exciting? No, it’s related to taxes. Blech. But it’s VERY efficient so it’s a great idea to do!

Let me show you some quick numbers:

  • Employer matches are often 50% top-up on 5% of your salary.
    • Whatever the amount is, you just made a 50% return year one. AMAZING!! Look at you Mr. SavvyFinance!
  • Tax contribution room is typical $19.5K/yr.

Yeah, I know taxes and tax-sheltered accounts sound complicated but investing is very easy and the exact type of account is less important than just using something.

If you want to read a dry article from someone else about the best tax-sheltered accounts. This is a good one!

A quick tip: I marked this as a $40K investment but you can only contribute $19.5K! Make next year’s contribution on Jan 1 next year to really max out your benefits, and look at that. You have 2 years of contributions covered!

Step 4 – Invest in Learning ($10K)

You hopefully have an income right now. I say hopefully because like we discussed, you’ll have to keep working.

Know what you don’t have to do though? Work the same drag of a job you’ve always had. For most people, they get their first job and plot a career up the ladder in that random field, never questioning if it’s what they really want.

Not you though!

You have a million dollars, you now have the power to start having some powerful impact on your happiness. You have enough money that you can make it work for you, instead of the other way around.

The easy way to change your life’s direction is to learn something that can change your career. If you have a job you can start by taking a course and becoming a highly paid specialist in your field.

A recent example of this: One of my employees wanted to become a technical specialist, which was a logical extension of his job. He took 2 courses from Udemy and read a textbook (using his money!) before he asked me to support his growth in that direction.

I sent him to a conference and before too long gave him a 10% raise. Even better, he gets to focus on the part of his job that he liked the most. Win-win for everyone!

Udemy courses are a cheap way to figure out if you enjoy a topic. Plus you learn a lot on the way!

If your job on the other hand is already awesome there are some great things to learn on the side that can take your life from great to uber-fantastic.

I owe where I am today to my real estate investments and would hands down recommend everyone gives it some thought. But I wouldn’t take it lightly.

Houses are expensive though, and making a mistake is painful so I recommend learning about it before taking the plunge.

Course Recommendation: Because of this I searched high and low for the best rental real estate course to recommend. Then negotiated an insane discount for my readers! Check out my review here!

Or you have the itch to fly solo and start your own company?

That’s actually the most profitable thing ever! If you can make it work out so by all means, use this opportunity to launch your entrepreneurial life with a course.

Starting a company is HARD so spending a bit on a course can let you skip years of effort. (I’m currently test-driving some so stay tuned!)

Step 5 – Take advantage of your amazing credit ($0)

People don’t talk up the advantages of amazing credit very often. Is it an investment? Not in the normal way of thinking about it, but once you have put the money into paying off your bad debt and have cash around, your credit is suddenly amazing.

You can use that to get better credit cards which will earn you more money with higher rewards or cash back and you can get better loans from banks for your mortgage or student debt.

Ah, the perks of being rich.

A Real Example: My wife has bad credit (mainly because she has zero income). She can’t get a good rewards credit card. She had a card that averaged 0.5% cash back.

I have stellar credit, and get about 2% cash back from my card. We spend $2000/mo on credit, so blamo, I get $40 a month just for having good credit, and my wife uses my card.
Does it count as an investment? My wife tells me it does.

Even better, if you have student debt, you can refinance it to an amazing rate if you have great credit. AND companies will even give you huge wads of bonus cash to sign up with them!

Student Loan Refinance Recommendation: I like CommonBond because they have the best rates, give you up to $550 of cash on signup, have unlimited-no-fee-prepayment privileges, and are also VERY charitable!
They almost make student loans… nice.

Step 6 – Emergency Funds ($25K)

This is quick.

Obvi, the best thing you can do with your money is to INVEST IT. And we’ll get to that. But you can’t go all-in with being an investor if you fear ending up on the street.

Poor raven never saw it coming

The solution? Have an emergency fund or safely invested money. Mine is in bonds, but it doesn’t really matter as long as it’s safe.

How much? I recommend 6-months of living expenses if you have a job and 18-months of expenses if you have checked out of the working world like I have. Then you’ll really have nothing holding you back.

Creating some passive income cash flow

Step 7 – Put some serious money into stocks ($500K)

When everyone thinks of investing they think of investing in the stock market. There are good reasons for that but for me, the biggest pro to investing in the “market” is that it can be very easy, takes minimal brain power to administer and still gets you amazing returns.

You can:

As we’ve discussed other times, index funds aren’t sexy but they work really well. Best of all, they are incredibly simple. Hell, I might be a finance expert, but my investments are so simple that they automatically allocate themselves.

How much income can this really make for you? So with some very simple calculations, your $500,000 should be able to give you $20,000/y for the rest of your life. That’s based on the 4% rule which is basically a conservative “how much money will I get if I retire on $X” rule of thumb.

Is $20,000 enough to live off of? According to the Department of Labour, no, but it would certainly cover much of your living expenses. I wouldn’t even recommend you try to live on $20,000 per year, because it’s less fun than having more money.

Investing money is like planting a money tree (image)

If index funds are so simple what does matter? It matters that you take control of it yourself. A financial advisor will charge around 2%/yr to mind your money, that’s 1/2 of your returns!

Even worse, they might upsell you to an investment that gives them a secret profit share (it happens). Automated robo-advisors will charge you 0.25%, are probably better, and won’t be nefarious.

So why are we not investing our whole million dollars in index funds? We could. But skipping out on steps 1-6 could hurt you, and you’d be missing out on some other great investments.

Step 8 – Don’t pay off your mortgage ($0)

If you were to ask your parents what to do with your money, I’m sure they would wag their finger and say “pay off your mortgage!” That was the sage advice of their day, but these days it’s a pretty lazy, fearful, and unimaginative way to use your money.

Not all debt is bad debt. Mortgages are pretty great actually (as I’ve described before). You get a huge loan with a pretty low-interest rate. It may not feel low when you’re paying thousands of dollars a month, but really it is.

Think about it.

Investing in the S&P 500 gives you about 10% return. (And an index fund would more or less match the S&P 500.)

Your mortgage is likely around 3%, so by paying it down, you’re effectively making 3% on your money.

Would you rather make 3% or 10%?

So paying off your mortgage isn’t great. It’s not bad, but it’s not great either. I recommend it for certain people – those that have plenty of money and just want to de-risk life with an easy investment – but that represents the minority of people.

So whats a better idea than paying off your mortgage?

Step 9 – Real Estate Investing ($400K)

More mortgage.

I am a big fan of rentals. It’s predictable, automatically inflation-adjusted and it was my main path to early retirement.

I have found that my rental houses net me about 11% return per year (8% cash flow) and my super-mortgaged houses are above 20%/yr. Some months are higher and some are lower which creates some interesting situations but overall I count the number as 11%.

Buying rental houses nets you lots of income with some headaches (image)

Mortgages are also money magic so you could transform $400,000 into around 1.5 million dollars of housing assuming around a 20% downpayment and some money for fees, repairs and breathing room.

That would get you quite a few nice houses in nice neighborhoods. Or you could buy a few cheaper ones in cash. Either way, if you just hit my low end of 8% cash flow per year you’ll be pulling in $32,000/yr in cash.

Managing a bunch of houses is certainly more of a headache than index funds, I’ll admit, and it’s not for everyone. (There are some pros and cons to self-managing, and a bunch of affordable software I’ve reviewed that should take some of these headaches out.)

Seriously though, there are so many ways to get into real estate investing that you’d be crazy not at least check it out. Start with:
Long-distance real estate investing – it’s cheaper and easier than you think!
Quadplexes – the secret loophole

If talking to people isn’t your jam (like a tenant calling you about a backed-up toilet while you are having dinner, or your manager calling to say your tenant lost their job), maybe crowdfunded real estate is right for you. It’s incredibly easy and removes 99% of the headaches.

What not to do with one million dollars? Buy Stuff!

Okay, so some of you know about my lightning rod dream of sailing the Caribbean with my family. So maybe this is a little self-indulgent. But on your way up to a near-job-free life, you could jump ship and start living like a normal person. You know… Spending your money on outrageously cool stuff.

You’ll have a lot of money and stuff is pretty cool.

What would you do with a million dollars Mr FireEscape? If I wanted to burn the money I would buy a big boat so I could throw parties like they did on Wolf of Wall Street, and also ride around on weekends with my family. It’s like going for a hike but more luxurious.

One million dollars could buy you a pretty nice boat too. I did a little research and found that I could even get a new spiffy Trimaran. That’s one hell of a boat that could hold some epic parties.

I would LOOOOVE to own that boat.

One million dollars buys you a Trimaran! Three hulls must be better than one right?!

I will never end up buying it though. Why? I know what I’d be losing.

How does it stack up against our other one-million-dollar spending plan? We know that we are just spending the money outright, so I wouldn’t expect a great “return on investment”, but let’s compare the numbers just for fun:

  • You won’t be making money off of your stock or real estate investments so treat it as a loss of $52,000/yr.
  • Your boat will be another thing to maintain and they are notorious for being expensive so that’s about another $18,000 a year of expenses.
  • You have a great party location so maybe you can save some money. Let’s call it positive $100 a week for 50 weeks a year (if you even live somewhere the weather cooperates).
  • All in all, spending that money is a loss of about $65,000 per year.

This boat is epic, but it’s not epic life-friendly.

This isn’t a knock on boats. I love boats but I would prefer to have the time to choose to go sailing than working most of the week and have a pretty party vessel awaiting my arrival.

Also read: Should I invest $1M for guaranteed income? HELL NO!

So what have we learned?

Having one million dollars is nice but you have to stay smart with your money and keep working for a while because it isn’t quite enough to cover everything in the average life, long term. If you follow our plan though you can be pretty close to “living like a millionaire” though!

The department of labor says that the average family spends about $60,000 per year, so having $32,000/yr from real estate investments and $20,000/yr coming from stocks gets you pretty close to not even needing a job anymore. You just need to keep up your job for a bit to make sure you won’t eventually land back on hard times.

If you use your million dollars properly you can have a better job, tons of easy side income, an emergency buffer, and little debt!

Does that sound like a millionaire lifestyle to you?

Can you live off 1 million dollars?

Not easily. According to the the department of labor an average family spends $60,000 per year. A savings account will yield 0.6% which is only $6,000 per year. Stock market investments would only yield $40,000 according to the 4% rule. One million dollars of rental properties could yield $80,000 but it would be unwise to be 100% invested in real estate. So even once someone has one million dollars they should keep working.

You can however, dramatically improve your life through strong finances, educating yourself to a better job and outsourcing work you dislike with your new income.

How much interest does 1 million dollars earn per year?

In 2020 savings accounts and CDs only yield around 0.6%. So the interest provided by a $1,000,000 account is only $6000/yr. Investment grade bonds would yield significantly more money at 2.8% or $28,000/yr but those still pale in comparison to the historical average of 10% returns from stock market investments.

What would you do if you had 1 million dollars?

If I had one million dollars suddenly appear in my bank account, I would invest it mostly in real estate then use the future cashflow to improve my quality of life. Hiring cleaners, landscapers, and assistants since I’ve already covered the SUPER efficient investments.

It would be tempting to spend it on a nice boat or car but I know I would prefer to spend an extra few thousand dollars a month instead of having one large expensive item.

What can I do with 1 million dollars of cash?

With 1 million dollars cash you can buy almost anything outright. Houses, cars and even boats. You can buy a brand new catamaran and sail the whole world in comfort. A more interesting use of your money though would be to invest your money to improve your daily life as much as possible long term.
If you invest your one million dollars you can have many thousands of dollars of cashflow per month for the rest of your life. Then you can use that money to make your life better. Once you have that much cashflow, bills are easy to pay, better credit cards become available and you end up getting better rates on loans which further improves your life.

Are you a millionaire if you have 1 million dollars?

One million dollars isn’t what it used to be, that’s for sure. You can’t retire and you can’t live like someone in a music video. Living that lifestyle would require some multi-millionaire level of wealth.

You do have enough money to radically improve your standard of living and live a much richer life. Once you have 1 million dollars saved up you have more money in savings than 92% of adults in the USA and you can easily have a few thousand dollars of extra passive income per month to use to improve your life.

What should I do with 1 million dollars?

If you suddenly find yourself with 1 million dollars in your bank account you should:
1 – Pay off bad debt – Saving on interest, reducing stress and improving your credit.
2 – Make a plan – If you don’t allocate it all out somewhere intelligent, you will spend it frivolesouly.
3 – Fill up your tax sheltered accounts and employer matches – It’s free money
4 – Educate yourself to improve your work life or move into a career you prefer
5 – Use your new credit – Now that you have money and no bad debt you have great credit. Refinance your loans and get some amazing credit cards.
6 – Make an emergency fund – This will reduce your stress level for your whole life.
7 – Invest in the stock market – Invest 1/2 of the money in the stock market via index funds. This should yield around $20,000 of income for life and be possible to liquidate if it’s ever needed.
8 – Don’t pay off your mortgage – Mortgage interest is too low to focus on. Improve your income first.
9 – Invest in real estate – Rentals yield lifelong income and a higher payout than stock investments. Having a portfolio of rentals ensures you will have a strong side income for life.

Are you rich if you have 1 million dollars?

The level that people consider you to “rich” keeps moving around. Even different age groups tend to think different amount of wealth constitute as “rich”.
However, once you have one million dollars you have more money than 92% of adults in the USA and can invest that money to live a much richer life no-matter what anyone thinks is “rich.” If you invest $1M you can have an extra $40,000 of income every year.
You can use that money to hire pool cleaners and dog walkers or whatever else makes you feel rich. Then it doesn’t matter what other people think.

TL;DR – What to do with a million dollars

  • We learned that having one million dollars doesn’t exactly mean what it used to.
  • You can’t just live off a stockpile of money, you have to do something with it and keep working.
  • You should do some smart things like paying bad debt, making plans, improving your job, using your new amazing credit
  • Invest a bunch in the stock market, and some rentals for long term gains.

So that’s my take on what to do with one million dollars. What would you do with a million dollars? Leave me a comment.



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11 thoughts on “What to do with a million dollars? An Expert’s 9-Step Plan”

  1. The payoff debt vs. investing trade off is a tough one for me.

    On a much smaller scale, I am working to repay student loan debt and start investing more. I have trouble deciding whether to pay more to my student loans (4% avg. interest) each month or put more into my 401k/brokerage. Personally, I feel compelled to payoff the debt mote than I do to invest.

    Reply
    • I get it completely. Statistically, it’s way better to invest, but statistics don’t make you feel better when you didn’t pay down your debt and your investments are declining. I would say you should at least be putting a little money towards your retirement every month just to keep yourself thinking about it and ready for when you have more money to invest. If you pay off your debt it’s certainly not bad, plus if you feel better that’s what’s most important.

      I don’t pay off my 4% debt, but I had an odd 8% mortgage I signed up for which I’m almost done paying off 🙂

      Also if you don’t have much cash month-to-month, paying off debt to increase your cash flow is smart, to make life a little less scary 🙂

      Reply
  2. Speaking from experience I learned that 1 million dollars isn’t all that much. At 19 years of age I received a car accident settlement of around that value. To be honest I wanted it gone out of my hands. I sat on it for months not spending a dime to let it soak in. I then bought a house for half of its value outright (no mortgage). It is worth it then to do it in my opinion. I took risks investing in business with no prior experience. I failed miserably but it was the best education I could have ever gotten. I bought a car, bought my parents a vehicle. I also fixed up the house we are living in. I partied like a rockstar for 6 years. To this date my net worth is equal to what I started out with. No loss, no gain. I did acquire though the wisdom of a middle aged man. The greatest teacher, failure is.

    Reply
    • Oh wow, good story! Paying off a mortgage is definitely not bad, but let’s say it’s less optimal than investments.
      You sir have gotten yourself a very expensive education at least 🙂 Maybe better than an MBA?
      At least it sounds like you came out happy! That is was really matters in the end I suppose.

      Reply
    • Do you have any advice or tips for someone in a very similar situation. I am about to receive about the same amount from a car accident settlement. I have been reading loads and loads of articles. Curious if I need to get a finical advisor or something. I do have a car I’d like to get and do something for my parents as well but want to be smart with the rest. It’s hard man.

      Glad to hear you seem happy and for you sharing. Reading comments like these make me think a lot more and want to do it right.

      Thanks for any help.

      Reply
      • I wouldn’t buy a fancy car. They are a money pit 😛 https://fiveyearfireescape.com/how-much-car-can-i-afford/
        Do you need a financial advisor? Hell no. I think they charge way too much money, and that’s if you don’t end up with one that’s just bad. (Legally I think I have to say I don’t count at financial advice though :P)
        If you follow the process I think you should do well.
        As for spending some fun money, and even helping your folks. I would enact the whole process to put yourself into amazing financial shape, then help people with the income your well invested money generates every year 🙂
        It’s too easy to “just spend it here and there” upfront and be left with nothing T_T I’ve seen it happen, don’t be one of those people.

        Reply
  3. I turned 65K into 160K from November 2019 to today from investing in individual stocks. Went all in with TSLA, sold in the 700s and bought 14 different stocks when the market bottomed. I hope to get to $1M one day…

    Reply
    • Tesla is a risky bet from my eyes but right on brother! You’ll get there. I do recommend going in on indexes though.
      You’ll feel like a genius after your tesla bet but no one is right all the time unless you buy an index 😛

      I invested in individual stocks for years and ended up converting over to indexes after burning a lot of research hours choosing my stocks 🙁

      Reply
  4. The Trinity Study (aka 4% rule) does not conclude that a portfolio will throw off 4% returns *indefinitely*.

    It concludes that a withdrawal rate of 4% over the course of 30 years has a 95% chance of success.

    Big difference, especially if you plan to be retired for longer than 30 years.

    Reply
    • Fair point, he also says it’s only 95% confidence interval for 30 years of retirement (longer being worse).
      My point is that it has such a strange rule set that it’s not a golden standard, just a nice rule of thumb. Even in Bengen’s seminal paper he states that you can easily beat it (such as by going stock heavy during a recession, or with belt-tightening). To me that makes it easily 4% indefinitely.
      Fair point though, maybe I should update this to make that clearer.

      Reply

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