Remember that song by the Bare Naked Ladies, “If I had a Million Dollars?” The singer goes through an elaborate list of things he’d buy his sweetheart with $1 million including a house, furniture, a car, fur coats, a tree orchard, clothes, a Picasso painting, and a monkey. Yes, a monkey.
Now, a million dollars certainly sounds like a lot of money, and don’t get me wrong, an extra million dollars could really help somebody out. But the truth is, a million dollars is not quite what it sounds like—and it isn’t what it was in 1992 when this song came out. (Though, no offense to the band, but I don’t think a million would have stretched that far even then…)
So in today’s post we’re going to settle things once and for all. If you suddenly won a million dollars, how far would it really stretch?
Taxes: If you win anything over $5,000, 28% will be withheld for tax purposes right off the bat. The maximum amount they’ll tax you for a large grand prize, $70 million and upward, is about 50%; so for a cool million, plan on losing 30-35% maximum on state and federal taxes. It could be as little as 28%, but we don’t want you to overextend your budget now do we?
Amount spent on taxes: $350,000
Amount Remaining: $650,000
House: Good news, home buyers—the average American home for 2012 costs 40% less than it did just five years ago. So if you’re looking for something pretty standard, in most places in the US, it will cost you about $242,300 (which of course you could pay off overtime with a mortgage, but that’s no fun and it is expensive. So here’s a tip: if/when you do win your $1 million and you want to buy a home, pay it off upfront. Done and done.)
Amount spent on home: $242,300
Amount Remaining: $407,700
Education: According to the National Center for Education, the average annual tuition plus expenses (books, etc.) for a 4-year public college is $17,000. So without financial aid, that degree will set you back quite a bit.
Amount spent on 4-year public school: $68,000
Amount Remaining: $339,700
Car: Many people I know have big dreams of buying a beautiful sports car with a windfall of money. But how much does that beautiful sports car really cost? For the most basic 2012 Porsche—a 911 Carrera—you will spend $82,100. For something a bit nicer—a 911 Turbo S Cabriolet—you’ll spend a minimum of $172,000.
However, if you want to be a bit more practical, remember that the average cost of a new car in 2011 was a measly $28,400.
Amount spent on a car: Reasonable: $28,400; Fancy: $82,100; Fancy, Fancy: $172,000
Amount Remaining: Reasonable: $331,300; Fancy: $257,700; Fancy, Fancy: $167,700
Food: Even if you decided to be super frugal and spend just $20 a day to feed your family, that’s still $560 a month and $6,720 a year. But let’s face it, you’ll probably go out to eat at least every once and a while with your winnings. For one nice meal, drinks included, count on spending about $75 for two. If you do this three times a week, that’s already $900 a month and $10,800 a year.
Amount spent on groceries & dining out (in one year): $17,520
Amount Remaining: $150,180
Travel: A lot of people decide to finally splurge on a nice trip if they come into some money. If you’re one of them, here’s what it would cost.
Four first-class tickets from New York to Paris: about $7,000
Seven nights at 5-star hotel (Ritz): minimum 1,757 EUR ($2,319)
Other vacation expenses: about $1,000
Amount spent on luxury trip: about $10,000-$11,000
Amount Remaining: $139,180
Alright, so now you’ve got just over $100,000 left. You could, of course, do as the song suggests:
Buy a monkey: $3,000
Buy an orchard: over $5,000 per acre, so at least $50,000
And one small Picasso etching (not a painting!): $30,000- $50,000
You could invest the money and grow it. A great place to start? Put $5,000 into a Mango Savings account and with direct deposit, earn 6.00% on that $5,000†! (That’s $300 per year!)
And check out our video series on investing for that remaining 100K. A million dollars might not be that much anymore, but if you invest it wisely, it can help your family over generations.
How would you spend your $1 million?
†Interest is calculated on the average daily balance of your Savings Account and paid monthly. Annual Percentage Yield (“APY”) and the APY comparison as advertised are accurate as of October 1, 2011. The APY advertised applies only to the portion of your Savings Account balance which is $5,000.00 or less. An APY of 0.10% will be paid on the portion of your Savings Account balance which exceeds $5,000.00. Fees may reduce the earnings on your Savings Account. This is a promotional rate and is subject to change without notice. A minimum of $1.00 is necessary to open your Savings Account. A limit may be placed on the maximum amount of funds you can deposit into your account. This limit may be exceeded by interest accruing on the funds. The limit may be changed from time to time.