If you found one million dollar in the morning and had to spend it by nightfall, what would you do with the money?
If I was asked this question a few months ago, I would have probably answered that I would buy my dream car, build my dream home and start a business. But after undergoing several lessons about financial planning and knowing how to properly build a sustainable wealth, my answer would now be simple: INVEST.
My first task would be to secure my emergency fund. This is the amount of money I would need to pay off my regular monthly expenses for the next 9 months should I lose a steady stream of income. I would place about 3 months worth of expenses in a regular savings account and then 6 months worth of expenses in a regular time deposit account. So for example, if I determine that monthly I need about 1,000 USD for my regular expenses, then 3,000 USD should be in a savings account and 9,000 USD should be in a time deposit account.
Second task is to allot money in low risk, medium risk and high risk investments as well as medium-term and long-term investments. Generally, medium and high risk investments would be my long-term investments while low risk investments would be my short term investments. So what are these? A variable insurance would be my first choice since it’s hitting two birds with one stone. I am already insured plus I have some investments in pooled funds. I would also invest in mutual funds and the stock market as part of my high-risk long-term portfolio. I would search for treasury bonds and buy some as part of my medium-term low-risk investment.
Third. After I have secured my savings and time deposit emergency funds (this are zero-risk investments) and my medium-term, low risk and long-term high risk investments, my next task is to find a business that I would devote my time and efforts to make it grow. Businesses are generally high risk and might involve several trial and error so it is best that before engaging in a business, all other financial aspects such as savings and investments are already covered.
What about purchase of items such as my dream car, dream home and dream vacation? This items will have to wait; not unless I have large excessive amount from the $1M would I think about buying these items. But I believe it would be more rewarding if the money I used to buy such things actually came from my own blood and sweat and not just from a money I happened to pick up.