Always be prepared if you receive chunks of money

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?
That is how I was able to take the sale of my previous home and quickly figure out that it would be better to buy a big position in VNR instead of paying off the HELOC. When the HELOC costs me 4% and VNR pays 8.6%, then the profit margin is clear.

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.

What do these options provide?
I’m now at the point where if one part of my wealth building plan needs help, another part can assist. For example, if BRK-B grows really fast, it’s always an option to sell a piece of it and pay off a real estate loan. Or if I build up enough VNR and pay off the HELOC, I can target the monthly dividend towards the rental loans or buying more BRK-B. Or I can sell one of my rentals and buy another EIUL in four years and a day to lock in the wealth.
Options beget options. The more active I make my role in my investment plan, the better I seem to do. It also pays to get out of investment vehicles that offer little if any choices and have a bad history of performance (401k and mutual funds anyone?) By being ready with plans in place, we are more likely to spot these opportunities and not get steered into destroying our wealth building vehicles like mortgages out of panic from some radio host.

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