You Won $1 Million! Which Of These Option(s) Will Be Your New Normal?

Option 1

Tell your boss what you think of him, quit your job, pay off your credit cards and live off your new bankroll.

$1M Life Expectancy: 12.3 to 12.8 years with no changes in lifestyle and no further use of credit cards

*Based on average annual income (US and Canada): $71,700 and Average Household Debt: $81,307 US, $119,022 Canada

Option 2

Go on a shopping spree with friends in Paris enjoying the first-class cabin posting your ventures on Social Media as you lay down thousands at Louis Vuitton and Galleries Lafayette.

You return home disappointed the European Romance did not pan out. Next, you trade in your VW Beetle for a new Range Rover custom ordered with the perfect colored stitching.

Forget about your job, you are top shelf now and work is beneath you, even calling the boss to tell him seems a chore.

$1M Life Expectancy: 3 years. You forgot to pay off your student loan and developed a shopping addiction. You come out unemployed and deeply in debt. You attempt to get your job back, but that bridge was burned by a post you made about your boss on social media.

It takes you ten years to recover financially from your decisions. Your Range Rover dealership wants $2200 for the next routine maintenance so you agree to sell it back to them for half what you paid.

They tell you the custom colors in the vehicle limit their ability to resell it.

Option 3

You keep your job and double down on debt payments. Next, you throw a dart at the work calendar and use that random date as your Freedom Date.

You seed your future and build a foundation for Financial Independence using the following rules and parameters:

Rule #1: Protect against loss of Capital

Rule #2: Generate Income

$100,000 into a High Interest Savings and/or Certificate of Deposit (10%)

Up to $250,000 into Bonds and Fixed income Investments (Up to 25%). Within this portion of the portfolio the following parameters apply:

1. Creation of a bond-ladder; and,
2. Diversification across a minimum of 10 positions.

$550,000 into Equity Investment (Not more than 75% of Total Portfolio). Within this portion of the portfolio the following parameters apply:

1. No more than $27,500 into any single position (5%); and,
2. Diversification across a minimum of 20 Investment Grade Stocks.

Up to $100,000 into High Risk Equity Investments or Real Property such as Real Estate (10%). Real Estate is something I consider to be a high-risk venture in current markets and $100k is not adequate capital to purchase property outright, therefore, RIET is an option.

Within this portion of the portfolio the following conditions apply:

1. May include REIT, Growth Stock, Venture Capital Investment; and,
2. Diversification across a minimum of 10 positions.

If minimum diversification is assumed total fees associated with these transactions would be:

Continuous Wins

After one year of investment the portfolio would earn $45,825 in annual passive income which will be re-invested in the portfolio.

Soon, your debt is paid using income from your job and your passive income generated in the portfolio matches your employment income. Subsequently, you feel a newfound freedom and develop goals for a Digital Nomad lifestyle.

The worn-out car you have is doing its job and you choose not to buy a new one yet. Nonetheless, you have bigger goals to achieve.

You continue to reinvest earnings in the portfolio the principal value of the initial $1M invested doubles after 17 years and generates well over $72k in annual passive income.

Each Year you rebalance your portfolio by re-investing the dividend income in fixed income investments. In addition, every 5^th year you direct your dividend income into high interest savings or CDs.

Occasionally, you see a year of stronger than expected returns and you take action to rebalance more aggressively. With time you siphon off capital from the risk portion of the portfolio and you purchase your first rental property.

This creates your real property holdings, which pay you 7% return on investment annually after expenses.

Your Friend Calls You Distraught!

You have not seen her for 3-years and you agree to meet.

She is in rough shape and tells you she had won millions, but the world conspired against her and she is struggling.

Your friend asks you for money and you briefly admire her Louis Vuitton bag. You offer your friendship and support. Additionally, you agree to help her review her finances and teach her how to create a budget.

You buy your friend a healthy lunch and when you return home.

Inspired, you phone your Mom to thank her for the wisdom and support she gave you while you gained independence in life. You ask if you can do anything for her and she tells you she has all she needs. Above all your Mom wants time with you.

You plan a vacation for just the two of you, your treat, and promise to tell her how you freed yourself from the rat race.

We assumed the following returns (any assumptions and future looking statements are speculative):

$1M Life Expectancy: Lifetime, possibly longer depending on your Financial Knowledge.

Maybe the million won’t come for you tomorrow but you need a plan for when it does.

Additionally, all of our posts in the Financial Freedom Series can be found here.

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