You just hit the lottery, what's next?
So, first, you need to figure out how to protect your winnings. We deal with that in another article on ThatMoney that you can find here. So, after you read that and you have your money safely invested, what's next? You could buy an island, buy a jumbo jet, hire a private chef, move to Montana. You can do whatever your heart desires. So, is it a good idea to do that? Spend it all?
Well, no, of course you don't want to spend it all. You want to find the happy medium between being stupid rich and just plain stupid. So, where is that line? When am I spending myself into the ground? You find that line by doing a good job of managing your rate of return. Your money needs to work for you. Your financial team that should include an accountant, an attorney and a financial planner should all be working on your behalf to maximize your rate of return while offsetting risk. You are the quarterback. You are in charge of understanding your financial picture and of directing your team, but you need their help too. Once your team is in place and they can deliver to you a solid rate of return, you have your bogey. Take your rate of return, let's say it's 15% on $10,000,000. That means annually you will be earning $1.5 million. A good rule of thumb is to spend no more than 25% of your annual rate of return.
So, in our example, you would want to spend $375,000 and no more. The rest should be plowed back in to your portfolio. That allows your portfolio to grow and you to enjoy yourself. Could you live on $375,000/year? I think so!
Imagine what you could do. You could buy a boat and sail around the world; visit Peru; travel with the New York Giants all season long; buy your own private golf course; paint your house in gold leafed paint. Whatever you want! What would you do?
