It’s good to always be thinking, “what would I do if I had a bunch of money?” I was reflecting on a previous article I had written, and really observed how the people that get a lump of cash often call a radio show because they DON’T know what to do. It’s important that we aren’t caught off guard and panic, but instead are prepared with a plan in mind.
The reason is, opportunities occur. We need to be prepped and ready to go with putting that money in action. For a long time, many years in fact, I had developed an approach that any big chunks of money I received would be sent into a spare bank account. I would “park” the money there, and let it collect. That way is was a little out-of-sight/out-of-mind. Every few months, I would examine the bank statements, and think about what to do with it.
Back in 1999-2000, before banking went online, I worked a particular assignment that paid me double my usual salary. I also had huge reimbursements for food and lodging. So I called up my local bank and asked if I could set up an automated deposit to another bank. My checkbook was filling up too fast! They said sure, not a problem. Apparently, they’ve been doing this type of stuff for decades!
Suffice it to say, working this way for over a year allowed me to sock away plenty of cash. At the time, I bought mutual funds and also kept enough cash to put a down payment on a house a couple years later. I didn’t just spend the money on things, I saved for the future.
What about today?
My wealth building plans of today are very different than back then. At one time, a few years ago, my plans had shifted to the point that if I came in contact with a big sum of cash, I would focus on paying off our primary mortgage. Much to my benefit, the money didn’t materialize before I learned to NOT DO THAT.
Here is my current mental process for dealing with big sums of cash:
- Can this money be used to buy cash flowing assets (real estate or VNR)?
- Would the cash flow be enough to pay any carrying costs and still profit?
- If not enough for real estate or VNR, what about a solid growth stock like BRK-B?
- Have all costs, risks, and rewards been considered?
I am also looking at cashing in my next stock option to buy even more VNR in order to pay off the HELOC faster.
Finally, when I withdraw the remains of my 401k, I’ll probably buy another chunk of BRK-B. There are no carrying costs involved with that chunk of money, so I think it would be good to “park it” in BRK-B. Should pay much better than a money market fund let alone some index fund.