What would you do with a million dollars?
This question is often asked to high school students by a guidance counselor, or by friends at a bar, and often the answer varies. However, if given a million dollars would you know how to make it last? How much money did you make in 2010? How much of did you keep?
Could you retire on a million dollars? Would you want to? What kind of a lifestyle could you live if given a million dollars at the age of 25. If you are immediately thinking of the objects you could buy with this money than you are definitely a product of the American educational system. We have all been taught how to consume. Some of us have been taught how to save. Very few of us have been taught how to invest.
Keep in mind that in 1971, Richard Nixon took the United States currency off the gold standard. The result was that our money turned into a currency. Like a river or ocean current, it fluctuates compared to other currencies. This makes great political sense because it allows a government to borrow money for a project, then print money to pay down the debt. When this occurs, debt becomes cheaper for everyone as there is now more money in the system.
In the past, inflation has risen about 3% a year keeping in line with about a 3% growth in US GDP. (This does not include war years which change all the economic rules). This is meant to encourage consumption. Imagine you want to buy a car. The government wants you to buy the car right now, even if you do not have the money to do so. You can finance the purchase today and have your debt become 3% cheaper a year from now; or save up for a year and pay an extra 3% a year from now due to inflation.
Another side effect of the 1971 decision is that money in the bank needs to be keeping pace with inflation just to maintain its value. Historically, the US has seen a 3% inflation rate. However, this was prior to TARP, Quantitative Easing 1, Quantitative Easing 2, Government Bailouts 2008. What interest are you earning with your money? Is your money earning more money?
You need to be pessimistic about your future. 10,000 Baby Boomers turn 65 years old every day. You and I will pay for their retirements. Can you even afford your own retirement? Social Security is bankrupt already so do not plan on retiring on that. Is a million dollars enough to retire on? Depends on the lifestyle you want to enjoy (Yes, life should be enjoyed, not just lived).
Responsible people have already started to save for their retirement. Some may have a number they want to reach in order to feel comfortable. Do you have a number? I hope that you do not. Instead you should be thinking of how much monthly income would give you the life you desire. I do not mean salary, I mean monthly income.
I graduated college in 2007 with a C average. If you asked me what I wanted to be when I grew up, all I could ever think of was to be happy. I got a good job after school. I travelled a lot. I worked a lot. I bought a lot of things. I was not happy.
I wanted to quit but two things kept me from doing so. The first was that I didn’t know what else I would do; I didn’t have a dream job. The second was that I had 4 different bosses. How do you quit with 4 different bosses? Do you have to quit 4 times and ask for 4 letters recommendations. Do you have to give 2 weeks notice 4 times? If I quit today, would I have to work for 8 more weeks?
My company was kind enough to to Up in the Air me which eradicated all the worry. Relieved right? Not really. Now I was unemployed and unhappy. Oh how I missed the days of employed and unhappy.
I then did what any young, confident and newly unemployed person does: I moved in with my parents and revised my resume. I’ll skip over all the self pity moments I had and go right to the epiphany. After sending out my resume to all the wrong places, I decided to take a very large chunk of my savings and invested into some Robert Kiyosaki Real Estate classes.
A lot of it was sales fluff, but one thing stuck with me. The concept of Cash Flow. This is similar to what Timmothy Ferriss preaches in The Four Hour Work Week and George Clason cites in The Richest Man in Babylon, but this time it made sense to me.
Cash Flow = money coming in> money going out.
Instead of looking for a new job I would hate, I began to find investments. Instead of working 40-55 hours a week for someone else, I dedicated all of my time researching ways to cash flow. Instead of accepting a job offer in San Diego, I purchased real estate in Arizona.
Lawyers, doctors, accountants and most likely your boss all have one thing in common. They get paid hourly. They sell their time for money. Yes, they get a lot of money for their time, but there are only 24 hours in every day. If they want more money they have to sell more of their time. I may spend a month working on a deal, but when I am done I get paid once a month, every month, for ever. If I want more money, I find more deals. If I want to sleep in, I sleep in. I decided my time is too valuable to me to sell it to someone else. How valuable is your time?
What would you do with a million dollars? This question expired in 1971. Instead, I ask you: What would you do if you cash flowed?