Winning a million!

What would you do if you won £1million?

Asking yourself this question is a fun exercise but the thought exercise has a more fundamental importance as it focuses your mind on the long term goals of saving and investing.

Is a million enough?

I think the first thing to say is that £1 million is not a lot of money nowadays. Certainly at my age (nearly 24) I could not  even consider retirement with £1 million in the bank. After all, this blog is about becoming a MULTI-MILLIONAIRE. By definition, one million is not enough. So the first thing to note is that the £1 million winnings would have to be put to good use in terms of wealth creation.

Where is this million coming from?

I think in this thought experiment the £1 million is either coming from the top premium bond win (if you have any premium bonds), or else is a relatively small lottery win (if you play), or it could be from a surprise inheritance. The point is that you received the money without too much effort.

Spending a million quid!

There are several things to consider once you've received the money. You need to think about tax considerations I.e to look for the most tax efficient protection for your money. You also need to try to find a way to earn a decent return. You also need to consider what sort of access you need to the money and also what sort of risk you're willing to take with it. Very importantly you need to be aware that if you're putting your money into a bank then you are not protected for the full amouny under the government's financial protection scheme. Currently, if you have more than £85,000 in an accout with a bank then this will not be covered by the scheme should the bank go bust. You may also wish to earn an income from your investment or spend it. However, I shall detail only what I would do in my current circumstances.

One of the first things I would do is to invest £30,000 into premium bonds, the full allowable amount. Whilst the return is only 1.8% on average, these returns are tax free. I also have the upside of potentially winning large amounts (I could win one million again, ad infinitum!).

I would utilise my full ISA allowance of £11,520. Using a stocks and shares online broken, I would invest half of the money in  blue chip stocks that offer a decent dividend yield of about 3%. I would invest the other half into an All-Share Index Tracker to aid diversification, reduce risk and to smooth out my return.This should provide me with a long term income return that has some protection from inflation. Each year I intend to fully utilise my ISA allowance in this way for the next 20 years at least. If I am married, I have the option to utilise a second amount of £11,520 (ie my wife's ISA allowance - assuming she allows me to do this!).

So what have we done so far? I've put £30,000 into premium bonds and stashed away £200,000 into easy access savings accounts (split between a few banks for security) to earn a little interest before investing it with a stocks and shares ISA trading account. I have also begun utilising my full ISA allowance for the year by investing in stocks and shares.

A millionaire goes househunting

The next step is to buy my first property (THAT I CAN AFFORD OUTRIGHT!). It would be a nice two bed, flat, worth about £400,000 in a decent part of London. Whilst living here I would save up for my next property with the intention to keep the current flat and rent it out to tenants to produce an income stream in the future. So, I've spent £630,000 so far, what else?

The next stage would be to put £200,000 into low risk bonds for as long a period as possible. I clearly do not need the money in the short run but would like a decent level of interest. Typically, the longer you tie up your money the greater the return. The addition of bonds to my portfolio adds some diversification away from property and shares. 

I would set aside the remaining £70,000 into a pot of it's own. This pool of funds would be purely for enjoyment purposes. It would pay for meals out, cinema tickets, gym memberships, theatre tickets, mini-trips away, classes, and days out. The point is that this account is to enable the things that I enjoy in life. This would not pay for anything ridiculously expensive like a world tour! Any summer holidays will still be paid for out of my salary.

I would continue to have a job and complete the accountancy qualification that I'm working towards. I would also still contribute to my pension. This is because I would not want to lose out on the tax benefits and employer contributions, effectively free money. I would like to have a steady and assured stream of income in my retirement. 

Winning £1,000,000 so early in your life does not guarantee a life free of money worries but it sure helps!

Readers, what would you do if you won one million today?

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