It is no secret that I am a mega fan of Get Rich Slowly and I read the articles over there almost every day. One of their weekend articles was a story from a reader who won a $1M jackpot and how she went on to invest the money prudently. Tina (the winner’s wife) explained how they sought help from a financial planner, and how they ultimately invested the money in a way that paid off, per the planner’s recommendations.
She must have hired a really good planner; I couldn’t find anything wrong with their decisions. Giving money to charity, raising their insurance safety net, buying a dream house (non-extravagant) and saving for retirement in an 80/20 stock to bond ratio. Just perfect!
Then I thought, What? Wait a minute. Is this the only way to spend $1M? Money that appeared out of nowhere? Since my childhood, I have aspired to become an entrepreneur one day. I’m always looking for ways to start a venture. The only thing preventing me from doing so right now is some legal matters (you don’t need to know) and lack of startup capital.
I don’t want to invest my savings in something that might fail, rendering me and my wife miserable. But a $1M jackpot would have been the perfect opportunity for me to start something on my own. Opening a shop, buying a franchise for a fast food chain, setting up an online store, investing the money in a startup, buying out a dying company or investing in real estate… Opportunities galore!
I guess I am not the only one thinking about doing something big or risky with a sudden lump sum of money. There are people who will first try to build a safety net around their retirement. I define this “safety first” mentality as a middle class mentality.
A middle class mentality gives rise to increased saving, resulting in a greater supply of money in banks, which leads to reduced interest rates. Lower interest rates lead to a boom in economic activity as businesses have access to the money at better rate. A growth of businesses brings economic growth.
On the other hand, an entrepreneurial mentality gives rise to a direct increase in the number of businesses and employees hired by those businesses, which in turn increases saving and also results in economic growth. Definitely many times more than what could be achieved by saving first (middle class mentality).
I think many readers will argue against investing money in a risky proposition, but do remember that someone took a risk and created a business, which is now providing you with bread and butter.
Investing in starting a business vs investing in stocks and bonds differs in the way each is utilized for growth of the economy. With the first option you have total control over your investments and get to keep everything you earn; but with the second option, your risk and reward are both limited. Basically you are limiting your growth!
That’s what I think, readers. What would you do if you won a significant amount of money by some means? Are you open to take risk?