Living Sensibly on $900,000 per year

Recently, I read in the newspaper how an $18 million lottery winner was filing for bankruptcy. My family and I began thinking, "How well could one live on 18 million dollars?" One often hears about how the lottery winners are now broke and have to return to working after several years of expensive living. Surely these people are wasting their money on way too many frivolous things. The problem, we realized, was that to most people, $18 million seems like an endless supply... but it isn't. Even my mom couldn't see how she could spend so much. So, we decided to come up with a yearly budget reflecting my own lifestyle (or, the one I think I'd like to have, if I had eighteen million dollars).

(Note that these numbers are merely estimates, and tailored to my specific designs of a lifestyle. Also, the eighteen million dollars is after taxes.)

The very first thing I would do is to deposit my money in a bank, assuming that I could find one that would accept my deposit and insure it for the total amount. Failing that, I would deposit the principle in a number of different (federally insured) banks, as well as in the stock market (with an investment company, because I don't want to spend all of my time watching my stocks) and in treasury bonds. My parent's financial advisor figures that they can get about 9% return over the long haul on their investments (no, they don't have anywhere near $18 million, don't ask for money). I imagine that that is a bit high and that any given year your total interest will be about 5%. Starting with $18 million dollars and never touching the principle, that ends up being $900,000 per year.


But, that $900,000 isn't the total I get. There are federal income taxes (~30%) as well as state and local taxes (varies, but I'm assuming ~5%). So, the net income per year is about $585,000.


The first expense, and the largest, in my plan, is a house. Now, I imagine having a custom-made house, having, for instance, a master bed and bath, a guest suite, a couple other bathrooms, a music room, an entertainment room, a computer room, secret passages, and so forth. We estimate that, at today's prices, I could probably get that for around $3 million. Now, we don't want to touch our principle, so we're going to have to take out a loan and have a monthly mortgage payment. At $3 million, with a 7.5% fixed rate, that comes to $225,000 per year. So, when you add in home owner's insurance and land taxes, etc., I estimate that it would come to about $279,000, leaving $306,000 for the remaining expenses.


The next big expense would be the maintainance of the house. I plan on a housekeeper and a gardener, both full-time, although I doubt I would need a full-time housekeeper. If each is paid $50,000 per year, that's $100,000 per year for inside and outside maintainance, dropping the total to $206,000.


The next big expense would be my cars. I would buy two, one for showing off, such as a z3, and one that's more practical, one that I can get the groceries in, such as a Jetta or something. For my practical car, I would try to get something that was as efficient as possible, so that I could save on gas. The z3 would run about $35,000, while a more practical car could run as low as $15,000. There's another $50,000 gone, although this would likely be quite a bit lower in the following years, as I would likely keep each car at least two years and could sell or trade in the older car for a newer car later. $156,000 left.


Then, you have to consider charities. There are many things I would fund if I had unlimited resources, but I don't. I figure that about $90,000 would be an appropriate yearly donation. $66,000 left.


I like electronics. They're very neat, and I would like to keep fairly close to the "cutting edge," although not so close that the electronics haven't even been tested yet. I estimate that I would have a new computer every year, probably a new laptop as well. $8,000. Also, the first year I would get a big-screen, high definition television for my entertainment room, and probably one or two for various other rooms in the house, not to mention a DVD player and a VCR. The televisions could be replaced every several years, although my family has had a television for 18 years. (Most don't last that long, though, and I would want to stay more or less on the edge, so every few years the big screen would probably be replaced). The old equipment can be donated to charities or schools, since it wouldn't be that old, and that means a tax write-off ^_^. $7,000 for the big screen and $1,000 each for the smaller ones (which is probably an over-estimate) makes $17,000 so far for gadgets. Palm Pilot-type devices and other miscellaneous devices bring the budget up to $20,000 per year. $36,000 left.


Food is very important to me. Granted, there may be several times a year where I eat at home, however, I figured that most of the time I would be eating out (or having something delivered, which amounts to about the same thing). If I'm living with someone, then the food budget has to be double what it would be for me alone (at least). If I eat lunch out (~$10) and dinner out (~$20), with breakfast and snacks running about $7 per day, then the total for a single eater is about $37 per day, or $13,505 per year. Twice that is $27,010. leaving $8,990.


Utilities on a $3 million dollar house would probably be about $150 per month (on average) for gas and electric. Also, there is the water, an average $70 per month. $2,640. $6,350 left.


Now we're getting down into the nitty gritty. The entertainment budget includes movies, concerts, plays, miniature golf, games, books, etc. Figuring one movie, concert or play per month, one round of mini golf once a month (this might be ice skating or other activities of about the same price), and $20 per month for books, that's $432 ($864 for two) to $768 ($1,536 for two) per year. (I am assuming the two-person higher-end expense), that leaves $4,814.


Next is gasoline for my two cars. The sports car is going to take premium, which, right now, is about $2 per gallon, and the z3 I'm estimating at fairly good gas mileage. Also, the cheap car is going to have decent mileage, although it will probably take regular unleaded instead of premium. Right now, we have to refill each car about every two weeks. The z3 has eleven gallons, but unless one is planning on pushing it some distance, one is going to fill it up before it's dry. Figure 10 gallons each fillup, for each car. Right now regular is about $1.50, so that's $35 every two weeks, which amounts to about $910 per year. $3,904.


That's my budget for the first year. There would be other things the second year, such as travel, once the bigger expenses have been taken care of (car, television, etc). Also, it might be wiser, if one was going to get a new car every three years, to lease it and reduce the at-once expense but increase the total cost over time, since it's more important to preserve the principle, because it's going to keep coming, but if you dip into it it'll slowly disappear. Other ways to drop expense would be to hire a housekeeping service that comes only once a week, instead of a full-time housekeeper. Same with the gardener. Also, those estimates are high, even for full-time help, so that you could start them at $25,000 per year and have room for cost-of-living adjustments. One also has to include the fact that the $585,000 will not be spent all at once. Meanwhile, it can be in the bank earning interest, which will help offset the other costs. Also, one might consider leasing the computers, since there are companies that will replaced and upgrade your computers while remaining on the same lease. Some will even transfer your files over for you, and that's worth something. On top of all that, any money not used in a single year can be set aside and be earning interest itself, funds for times when the economy isn't doing as well.

Let's see what happens if we change a few things. First, instead of a full-time housekeeper, we hire a housekeeping service that comes once a week. That reduces the yearly expense from $50,000 to $3,900 ($75 per week). Quite a savings! Next, the groundskeeper could be replaced by a groundskeeping service that mowed, trimmed, fertilized, clipped bushes and so forth, possibly landscaping as well. This would be more expensive than the housekeeping service, probably in the neighborhood of $90 per week. Reduced from $50,000 to $4,680. So far, our savings are $91,420. That's enough for several trips! On top of that, reduce the car budget for the z3 by leasing it from $35,000 to $7,200 ($600 per month) and the other car from $15,000 to $4,800 ($400 per month) and that's another $38,000, bringing the total left to $133,324. That's enough to take a couple trips and lease another car or two, dine out all the time with someone and still have some left over. Now, I haven't included any pets, but $133,000 will cover a couple dogs and/or cats.


That's how I would do it. Now it's your turn. How would you spend your $18 million?