Ask HN: What would you do with $1M cash?

[teamleadnew]

Here is a quick background. I live in the Bay Area, I'm a software engineer so I have a 9-5 job. I hate that life/setup and I always wanted to work for myself with no boss. I will have about $1 - 1.1 million cash coming in from a family trust. I'm all about working hard and building things by myself, so I'm not proud about that trust money... I'm seing it as a huge opportunity for me to transition to my ideal life, no debts, no boss. I do have a wife and a baby to take care of and ideally we would want our own house.

So, my idea is to move out of the Bay in a cheaper place, where we would buy a descent house for about $500k cash. No mortgage, we would pay-off our car loans (about $40k) in order to completely get out of debts. Now, with about $500k left I was thinking I should keep about $100k in a savings account as a buffer. Then I'd like to invest the rest ($400k) for my future retirement. The missing part is generating an income by myself to pay the remaining bills, etc. But with such a setup, I feel super lucky to give it a shot.

What would you guys do in my case? Is this the right approach to get out of my 9-5 job while taking care of the rest?

[DoreenMichele]

Spending half on a house is not a great way to establish your independence.

There is a rule of thumb in finance: "Easy come, easy go."

You should pay off your car loans and then sit on the rest of the money for six months while trying to make these plans with your spouse rather than with a bunch of internet strangers. It is psychologically much harder to spend the money if you hold it a few months.

If you don't know how to be your own boss without a million in assets, it won't magically come to you just because you inherited money. With a well established expensive lifestyle like you clearly have and immediately spending half on a house, plus $40k on your car loans, you won't have as much maneuvering room as you think.

You should be asking questions about whatever business ideas you have and how to make those work. You should be researching where you can live comfortably without needing to spend a half mill on a house.

[teamleadnew]

Then why would spending $500k impact my 9-5 independence? I'm not linking the two. It's more about satisfying short terms needs like getting a house for my family then getting out of debts quickly. I think it's 2 different things. A lot of people here say you should become independent without any extra money. I agree, how about using that extra money to do what I would do by making a lot of money on my own? If I create a business and generate $1 million, I'd certainly buy a house. Again, I want to use this money to make myself focused 100%. Think of it as luxury money in the sense that I wouldn't have to worry about anything but my own project.

[DoreenMichele]

There are two ways to increase your runway:

1. Lower expenses.

2. Increase income.

You haven't talked about your business aspirations. Maybe you will be profitable from the word of go and this is a nit. I only know what info you have posted here.

Based on what info you have posted here, I assume you will need to figure out how to make money. Being successful at a 9 to 5 job doesn't guarantee entrepreneurial success.

An expensive house will come with higher property taxes, higher insurance costs and higher maintenance costs. A larger house will tend to soak up money for more furnishings etc.

Paying cash for a house doesn't have you living Scot free in terms of housing costs. It does substantially reduce carrying costs, but doesn't eliminate them.

You are talking about immediately spending $500k on a house, $40k on car loans and incurring moving costs. This leaves you with well under $500k to live on.

You don't sound like the type who can live on a shoestring budget. A half million for a single family home is an unimaginable figure for me. If I had that kind of money right now, I would likely buy two or three buildings, renovate them, live in one and become a landlord and still have money leftover.

I've read a lot of financial articles over the years. Two thirds of lottery winners are bankrupt within 5 years. I think one reason for that is that most people are either in earning more or in consuming mode and quitting gives you vastly more time to spend money while not earning. Keeping yourself entertained on the cheap is not what they envisioned.

You can do whatever you want. It's your money and your life. I merely made a good faith effort to answer the question. If my answer is not your cup of tea, well, you didn't pay for this advice. So it's fine if it is worth to you exactly as much as you paid for it.

Best of luck in your endeavors.

[teamleadnew]

1. that's exactly what I said I would do by paying off all my debts. This is a life with no debts. zero loan, no mortgages. Plus, like I said, I would still have enough cash on the side (about half a million) so I wouldn't have to worry about saving a dollar anymore. That 9-5 steady income would become like a plus rather than a necessity like 99% of the world.

2. That's not a short term goal. I don't care about increasing my income right away. I'm already making enough money as a software engineer working in the Bay Area. I don't need more money technically speaking. Problem is, I can't work at a 9-5 job anymore. Why would someone work at a 9-5 job? To pay bills? To buy a car? To buy a house? To have a steady income, etc. Like I said, I'd use that money to make my 9-5 job as obsolete as possible for a smooth transition to generating money on my own.

Where I live (Bay Area), $500k gets you a one car garage. I don't necessarily want to live in a place where schools aren't that great and where there's no opportunities. I'm not talking about living a luxurious life in San Francisco, but looking at places in Texas, Washington state and any other tech hubs, $500k gets you a house. Not a mansion. Not willing to move to Nebraska yet or Wisconsin... nothing against these 2 beautiful states but again, it's about opportunities for us and our kids. I said $500k which is my original budget, it depends on where my wife and I decides to move. Again, today, I make about $200k/year and I don't own a house. If I spend $500k in a house tomorrow, it ain't gonna change anything but the fact that I own a house outright. You see where I'm going? It's not about not being smart or not knowing how to manage money... nothing to do with a lottery winner like you said. This is pure extra money to me. Should I put it in a bank account and not touch it for the next 10 years? Worst investment ever... real estate will bring way more money than waiting for the FED to print out more papers. $500k US paper dollars will be worth $250k in 10 years. I already have various investments, crypto, bonds, index funds.

Also, as a home owner you have what it's called tax itemization. $24k/year if you don't itemize. A house that is paid off would cost me less than a rental. Keep that in mind. People are used to think that buying a house puts you in debts for life. It won't be the case since I would buy the house cash and still be making enough money per year. It's all about that transition from my 9-5 job to a fully autonomous business. If I fail with my project, I won't go bankrupt thanks to being out of debts with half a milli on the side. working at mcdonald's would be enough for me to end up positive at the end of the month.

[DoreenMichele]

If you are going to keep your 9 to 5 job, coolios. Enjoy house hunting.

But I am responding to your assertion that you plan to quit:

I'm seing it as a huge opportunity for me to transition to my ideal life, no debts, no boss.

The missing part is generating an income by myself to pay the remaining bills, etc.

It sounds to me like you are getting incredibly worked up about what I've said and offended and I don't understand that at all. So, I regret replying at all and enjoy your inheritance.

[teamleadnew]

Not offended at all. I just found your answer to be a little to "standard/cliché" and not targeted enough. Like putting someone in a bucket right away. It's not the case trust me... I'm better than that ;) Thanks again for taking time to post an answer. Really appreciated.

[dman]

I would refrain from buying the house until 2-3 years into the transition and after you reach a point where you are cash flow positive in your new life. Ditto about the car loans if they are low interest rate ( < 3%). In short put the 1M aside and try to do the switch as if you did not have the money. You should be able to make the switch without the $1M subsidizing the switch (except for subsidizing your monthly cashflow for the first year or so).

[AnimalMuppet]

In my circumstances, I'd pay off my house, replace one of the cars, and pay off my kids' student loans. I'd put the rest into a retirement fund, and see if I had enough to retire now.

In your circumstances, I wouldn't pay $500K for a house. Out here, $500K doesn't get you a "decent house", it gets you a mansion. You, your wife, and your baby probably don't need 5000 square feet of house. (Seriously, $500K can get you that. And seriously, don't do it - it's a huge waste.)

The other part that bugs me about what you propose is that "I want to work for myself", "no boss", "I feel super lucky to give it a shot" is not a plan. You can waste a lot of time and money trying to figure this out - certainly you can burn through $100K. It's far better to have a realistic plan before you start, even if you don't have all the details figured out yet.

[teamleadnew]

I have a couple of side projects I'd like to explore more. The problem I have is that my 9-5 job that utilizes most of my brain everyday. I come back home mentally exhausted then here is the baby.

I agree with you on the $500k. That is just the idea, it doesn't have to be that much and will depends on where we decide to move. Definitely not looking for a mansion :)

So setting myself up to where I could free-up most of my time would help a lot in this transition to no boss-life. Plus, most of my projects do not require any crazy investments, we're talking hundreds of dollars. It's just about paying the bills for the house, gas, food, etc. while getting up and running with a business/income.

[metabagel]

Invest the money somewhat conservatively and keep working. You're almost guaranteed to be able to retire early, which is something that few people can say.

[kp1]

Are you taxed on that money? Get a cheaper house .Why 500k? Talk to a Financial adviser.

[teamleadnew]

This is after tax money. Financial advisers are like car salesmen unless you're extremely rich. I'm already taking care of my investment portfolio (bonds, index funds, etc.). What they're gonna say is "double down", "increase your position". 500k because I'm aiming for places like Seattle, Austin, Denver, etc. Still looking to stay around a tech hub that is still cheaper than the Bay Area.

[anoncoward111]

Put it in something that will reliably pay you a certain amount of money for the rest of your life

[teamleadnew]

I thought about passive income but I'm more of an active income type of persons. I'd rather bet on my ability to generate money from my own sweat. That's what would drive me... Especially if everything else is taken cared of (house, retirement, debts). That means less pressure and more focus.

Also, passive income is unfortunately not the best tax optimizer unlike a business where you can use a lot of tax write-off.

[resource0x]

Reliably? What kind of investment pays anything reliably? You can't get 3% from gov-t bonds, but if inflation picks up, you are in trouble. That's the whole point: there's nothing reliable, except death and taxes :)

[anoncoward111]

I would suggest an annuity if OP is planning on living for a very long time and the money was completely unexpected. An extra $1000 a month guaranteed is pretty compelling. Sure you could maybe make $2000 a month from mutual funds or something, but it wouldn't be a stress free, steady rate of payments. It would boom and bust with market cycles

[dman]

So you are saying OP could start a country and setup taxes as an income stream? :)