Making your first million dollars is exciting, and you’ll likely want to celebrate. But a million dollars doesn’t go quite as far as it used to, and you might not be at a point financially where you can just sit back, relax and spend.
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It’s OK to celebrate this major milestone in your life. You’ll just want to be smart about what you do next, now that you’ve got a decent amount of cash — ideally allocated across different investments and retirement accounts — to your name.
So, what exactly should you avoid doing and what should you do instead? Here’s what the experts say.
Don’t Stop What You Did Before
Many newly-made millionaires stop doing what they did to get to that point in their lives, something that can quickly lead to losing what they’ve made or stunt their financial growth. Don’t do that.
“This one is very simple,” said Stoy Hall, CFP, CEO and founder at Black Mammoth. “Keep doing what you did to make your first million! If you can keep doing what you have been doing, the next $10 million comes faster and easier.”
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Don’t Skip Out on Tax Planning
With money comes a lot of responsibility — and a lot of tax implications that might not have mattered so much to you before. Don’t neglect proper tax planning, or you could face some major tax liabilities.
“Individuals should focus on creating a diversified investment portfolio that balances risk and aligns with long-term financial goals,” said Wes Lewins, chief finance officer at NetWorth. “It’s also crucial to seek advice from financial, tax and legal professionals to optimize wealth management strategies.”
Don’t Increase Your Spending
One of the fastest ways to lose that million dollars is to increase your spending, so don’t do that, either. In fact, you might want to tighten your budget so that you only spend up to the 4% rule — that is, you use no more than 4% of your total investments.
“For those fortunate enough to achieve their first million, my initial recommendation would be to exercise prudence in spending by not exceeding $40,000 in expenses in their first year,” said Robert Finley, a fee-only certified financial planner and portfolio manager with Virtue Asset Management. “This sum aligns with a sustainable withdrawal rate, ensuring that the principal remains stable over the foreseeable future.”
If you spend more than $40,000 a year, you risk cutting into the principal balance and losing out on potential returns or long-term financial security. But if you can’t keep to that budget, find other ways to supplement your monthly income so that you don’t draw more than $40,000 from your original million.