Last week I read a fantastic blog post published by Mr. RIP from Italy, titled what would you do with 1 million euros.
Apparently this post began last month in the UK FIRE community, where people would run a thought experiment with the following question:
What would you if you got given £1 Million?
Since I’m in continental Europe, I will take up the challenge in euros instead of pounds. In the end, I don’t think it makes a difference anyway.
The article by Mr. RIP was very well written. My mind isn’t that clear yet on this topic, that’s why decided to participate in the experiment, and post in this new category Thoughts on Tuesday. Writing helps me to structure thoughts, so please find below my answer to the question “What would you do if you got given €1 million?”
One. Million. Euros.
That’s a lot of money. Like seriously, a lot. Here in The Netherlands, a million euros is still considered a metric shit ton of money.
In the USA, if you make Silicon Valley programmer’s money, or New York City banker’s money, a million is something you can save up in a couple of years. In The Netherlands, a million euros is a lot. Not a lot of jobs pay the kind of money you would earn in the aforementioned US-based jobs, plus our government will take a large chunk of your hard-earned salary (up to 52%).
So yes, a million is a lot. That doesn’t mean that it is impossible to save up for it, I mean, with my current savings rate I will hit the million euros mark probably between 50 and 55 years old. I expect my savings to go up in the future, so saving up that money is doable. It will take some time though.
The value of a million euros is quite significant for my financial independence. I would currently be FI with about 700k euros, assuming a 3.5% withdrawal rate and keeping my current comfortable but not lavish lifestyle. A million euros would definitely push me way over my current target, but not into fat-FI land yet.
So, what would I do when I suddenly see a million euros coming into my bank account? Absolutely nothing.
Do Absolutely Nothing for Three Months
When you get a sudden windfall like this one, it’s best to do nothing for a couple of months. Human beings are not good in reacting on emotions. So instead, you should think rationally before you make any decisions.
Thinking rationally would probably be difficult for me when I see the push notification from the bank on my phone, telling me that somebody transferred a large sum of money.
To counteract making stupid decisions, I will just put the full amount in my online savings account, for three months, and think long and hard about what to do with it. Plus, I get to earn a whopping 0.27% of interest on the money, yielding an incredible 675 euros in those first three months.
Don’t Tell Anybody
Seriously, don’t. If you run into a lot of money like this, people will treat you differently. That is wrong, I know, but it’s the truth.
Most likely, I’ll only tell Girlfriend about it and nobody else. Not even my parents. There’s no need to, so that’s it.
Wasting Some of the Money
With a very small portion of this money I could help out a family member in need. I would talk to him, tell him his problems are gone, transfer the money, and see through that he actually uses it to fix his troubles. Then it’s done. I do not expect this money to be paid back ever, I consider it gone for good and I’m happy with that. If I’m wasting money by helping somebody, so be it.
I would definitely take some of the money to stop working for a couple of months and go on some nice holidays. Probably not on cruises that cost 10k, but I would like to see parts of the world, and also just to not work for a couple of months.
Invest In Very Safe Investments
My current investment style is pretty aggressive. I invest in the broad stock market ETF VWRL, so I’m well diversified, but still it’s 100% stocks. But I don’t own any bonds. However I do sit on a chunk of cash, but that’s earmarked for investing in real estate.
I can invest aggressively, focused on capital growth, because I have a solid job with a lot of potential growth. My salary is significantly higher than my living expenses, so I can save a lot. That’s money I don’t need right now. I can invest it for the future.
When you receive a large cash payment you didn’t anticipate, there is no need to risk that money. I would therefore invest this money very conservatively.
I Would Pay Off My Mortgage
The first thing I would do is paying off my mortgage. I know how silly this sounds, especially after my article where I explained how and why I took out an additional mortgage to invest with!
But think of it like this. I’m given a seizable amount of euros that I didn’t work for. Let’s make damn sure those euros will make me free, so I never have to work again!
One way of doing that is by paying down loans. I understand how credit can be very bad for your financial health. I also do like loans, and the way they can be used to build wealth. For example, when buying investment real estate. But when you’re close to financial independence, I believe is wise to pay off all loans, even if they are basically free.
Paying of my mortgage would be less than 20% of the one million euros, but it will save me around 40% of my needed cash flow. So if I pay off the mortgage, I could live on a lot less cash each month.
Buy Some Rental Real Estate
Second, I would purchase some rental real estate. At the moment I’m saving up for a real estate investment, so when given a million euros there will be a lot of opportunities.
When I invest, I would not use a mortgage to leverage the property. I know that leverage in real estate investments will make your returns higher, but at this point I’m after cashflow, not capital growth. I want to own properties that are paying the bills, and provide a very steady stream of income.
Most likely, I would purchase two or three small starter apartments in my current city. After subtracting running costs and reservations for maintenance, each apartment should provide 500 euros per month. When I buy three of these, that will cover more than my costs of living at my current lifestyle, after paying off the mortgage.
With the current market conditions, it might take a little bit longer than normal to purchase three apartments. There is simply too much competition going on. Although I’ll probably not wait until the next market crash, I will not overpay just because I want to buy something.
Build a Conservative ETF Portfolio
With the money leftover I will invest in a very conservative ETF portfolio. It will most likely consist of a part VWRL to have exposure to the world equities markets, a part dividend stocks that have a long history of paying dividend, and a large chunk of bonds. Yes you read that correctly, B is saying he will invest in bonds. Even though I don’t like bonds, this would be a valid reason to invest in them. Remember, I’m not building this portfolio to double my capital in a few years, but rather to preserve it and get some very safe passive income.
Tallying Up the Finances
There’s a lot to think about when investing money like this one million euros. In the paragraphs above I explained what I would likely do, and what I would invest in. If we sum up the ideas above, we would roughly get the following:
|ONE MILLION EUROS!||1,000,000|
|Paying off the mortgage||190,000|
|Buying three rental apartments||450,000|
|Building a conservative ETF portfolio||310,000|
That’s right, there goes my one million. And I even wasted a cool 50,000 euros!
What would you do when given 1 million euros?