If I Won the Lottery

Money has its ebbs and flows, making winning the lottery a safeguard for my financial future. Let's prioritize the essentials in case the money vanishes tomorrow, returning me to my current financial state.  Here's the list of imperative actions to take:

• Bid Adieu to Mortgage and Debts:  My victory dance would kick off with paying off my mortgage and all debts. Why? Because if the universe decides to play a prank on me and snatch away the fortune tomorrow, I'd still have a cozy roof over my head and not a worry about mortgage payments.  Total: $600,000

• Addressing Essential Home Improvements:  Our enduring 30+ year-old residence is calling for a series of vital upgrades, encompassing a new kitchen, rejuvenated bathrooms, refreshed windows, and a secure deck that beckons exploration.  HGTV, indicates that an average mid-range renovation—restrained by my choice to not venture into the high-end territory—amounts to approximately $80,809. Within this mid-range scope, we envision the inclusion of functional cabinets, appliances that fulfill their intended purpose, countertops that remain unmarred, and floors that bear no signs of overuse.

Shifting focus to our bathrooms, the prospect of a mid-range transformation comes with an estimated price tag of $40,000. This allocation permits a slight reconfiguration of the spatial layout while facilitating the upgrade of fixtures for enhanced accessibility.

On the window front, with a roster of 20 windows set to undergo replacement, the average cost per window of $800 contributes to a cumulative investment of around $16,000.

Though I may not be a fervent BBQ enthusiast, the imperative of a secure deck outweighs my personal preferences. Notably, the exchange of an unsafe deck for a safe 20x20 counterpart approximates an average expenditure of $17,000.  

Total:   $233,809

• Property Taxes—The Next 30 Years: The perpetual dance with property taxes loses its charm in the face of such abundance. I'd choose to tuck away a substantial sum—equivalent to 30 years' worth of property taxes—to ensure my haven remains serene. A portion of this sum, equating to three years of property taxes, would find refuge in an interest-bearing account—a safe harbor where caution reigns supreme. The remainder of the funds, however, would venture into riskier territory: a low-cost S&P 500 index fund. The rationale? The historical average rate of return for the S&P 500 index fund, a commendable 7-10% annually after adjusting for inflation. Why dabble in cash when inflation nibbles away at value? Well, the wisdom lies in diversification. While the index fund dazzles with its historical performance, the siren call of cash ensures readiness to weather the volatility of unforeseen market downturns—those unpredictable bear markets.  

Speaking of bears, let's glance at history's chronicle of prolonged market gloom:

• • Great Depression Bear Market (1929-1932): The ominous clouds of the Great Depression bear market gathered after the 1929 stock market crash and lingered until the mid-1930s. During this agonizing span, the Dow Jones Industrial Average (DJIA) shed a staggering 89% of its value, etching a lasting memory of one of the most severe and protracted bear markets.

  • Dot-Com Bubble Bear Market (2000-2002): The turn of the millennium ushered in the dot-com bubble burst and the ensuing bear market. It spanned from 2000 to 2002, as the S&P 500 Index spiraled down by nearly 49%. The downfall, a fallout of overhyped technology stocks, underscored the unpredictability of market sentiment.

  • Global Financial Crisis Bear Market (2007-2009): The global financial crisis triggered a tumultuous bear market that unfolded between 2007 and 2009. During this tumultuous chapter, the S&P 500 Index plunged by around 57%, a consequence of housing market collapse, banking sector turmoil, and a cascading recession.

  • Nikkei Bear Market (1989-2003): Japan's Nikkei 225 Index bore the weight of an extended bear market, commencing in the early 1990s and enduring for over a decade. This prolonged downturn was marked by an asset price bubble, economic stagnation, and challenges within the banking sector.

From this limited dataset, the average duration of a bear market clocks in at roughly 2.33 years. To give myself a bit of elbow room, I'd round up to three years for my cash stash—an extra layer of financial padding against the uncertainties of market tumult.

Total: $300,000

• Home warranties:  Keeping up with the upkeep of a home can be a costly affair, often unveiling unexpected expenses. For instance, the price tag for a new roof on an average 2,200-square-foot home can vary dramatically, ranging from $3,300 to $33,000. Similarly, the installation of a new HVAC system comes with a wide-ranging cost of $5,000 to $34,000. These figures underscore the potential financial challenges homeowners can face.  

I just won the lotto and I'm safeguarding my financial security, so let's create a home warranty plan:  I would earmark $1 million for home-related maintenances.   The plan: $250,000 would find its way into an FDIC-insured account boasting the most competitive interest rate on the market. The remaining $750,000 would nestle within a low-cost S&P 500 index fund, poised to harness the market's potential for growth.

The rationale behind this division is simple yet effective. With $250,000 readily available, the sudden emergence of an expense wouldn't blindside me—a cushion that assures swift action. But what about the accrued interest exceeding the initial $250,000? It's an opportunity to further fortify the future. Any surplus interest earned in the account would be diverted to the brokerage account, allowing it to flourish and bolster the overall financial stability.

Total: $1,000,000

• Getting some new wheels:  As my current vehicle enters its final stretch, I'm crossing my fingers, hoping it holds out until the arrival of Black Friday deals in a few months. My intention is to secure the most cost-effective and dependable car available. However, the current state of affairs in the automotive industry, characterized by supply chain disruptions and inflated pricing, has created an unexpected twist. The base model of a Toyota Corolla, for instance, reached a staggering $30,000 mark during our search to replace our faithful 10+-year-old Volt (great car!) in 2022.

In my dreams, I envision driving an all-electric SUV—an eco-friendly choice that eliminates the need for fueling stops and frequent oil changes. Yet, even the starting price of the most affordable all-electric option, the Chevy Bolt, at $26,500, is likely to surpass $30,000 due to dealership markup adjustments prompted by heightened demand. However, I've just struck lottery gold, so the actual price tag of a vehicle seems to pale in significance. Nevertheless, my pragmatic side resists the allure of an expensive car that would drain my resources with incessant, pricey maintenance (I'm not falling into that trap).

What truly resonates with me is the Hyundai Ioniq 5—an attractive choice with a commendable charge range spanning from 220 to 303 miles. With an MSRP of $42,785, the Hyundai offers both reliability and longevity—qualities that Hyundai is celebrated for. Assuming a standard 7% sales tax and accounting for $500 in accompanying "service" fees, the projected out-of-the-door price for the Hyundai rests at around $50,000.

Total: $50,000

• Investing in higher education:  In a mere decade, my four aspiring scholars will step onto the college stage, with costs looming large. With a four-year in-state education potentially soaring to $104,108 per student, my focus rests on the economical realm of public colleges within our state.

While a recent lottery win might seem to trivialize $104,108 multiplied by four, I remain mindful of the strategic merits of the 529 Plan. Armed with ample resources, I'm "superfunding" each 529 Plan with a $85,000 infusion per account in one year. A 7% average annual return could potentially blossom this to around $156,074.61 in a decade—an admirable step, if not a complete solution.

Yet, let's not forget the substantial resources at hand. I intend to bolster my approach by directing an additional $85,000 into each brokerage account, invested in an S&P 500 index fund. Moreover, in the fifth year, a strategic $85,000 transfer from each brokerage account into its corresponding 529 Plan awaits.

With the backdrop of a 7% average annual return, an inaugural $85,000 investment, and a well-timed $85,000 addition in the fifth year, the investment's growth potential hints at an impressive $632,740.26 per account within a decade. Simultaneously, each taxable account still retains around $38,544, poised to flourish over thirty years with a consistent 7% return. The culmination of this financial choreography—a substantial $337,927.34—will be entrusted to each child, equipping them to navigate life's financial currents.

Total: $680,000

• Managing Finances with a Latte on the Side:  As of this moment, I've stumbled upon a rather promising interest rate for a savings account: a respectable 4.3%. Now, I've set my sights on a tidy annual interest sum of $200,000 – a figure that translates to a take-home of around $135,450 after accounting for the top federal tax rate of 37%. This equates to a monthly allowance of $11,287.50, affording me the luxury of not only covering essentials but also indulging in a stream of Starbucks lattes throughout the day. Ah, the simple pleasures!

To reach this desired annual interest, I'd need to allocate approximately $5 million into a savings account. Naturally, I'm no financial novice and won't blindly pour all my funds into a single savings vessel, given that the FDIC provides coverage only up to $250,000. Prudence dictates a more strategic approach:

• Crafting Individual Safe Havens: The beauty of individual accounts lies in their insulation under the FDIC umbrella. Each of these accounts is insured up to $250,000 per depositor, per ownership category, per bank. This translates to a scenario where multiple single accounts, each containing $250,000, gain their own FDIC insurance coverage, distinct and separate. Consequently, I've decided to embark on the journey of establishing not one, not five, but twenty single accounts, ensuring that my $5 million is well-guarded within the boundaries of FDIC protection.

Total: $5,000,000

The practical necessities tally up to $7,863,809, leaving a significant $381,306,191 to assist family, friends, and possibly make a larger impact. More plans and ideas will be explored in a future article.

With the essential matters settled, I now have $381,306,191 at my disposal for the next phase of my grand plan.

• Charity starts at home:  Residing in an exorbitantly costly locale—not quite San Francisco, yet still imposing financial strain on my modest earnings—can often feel overwhelming.  Despite benefiting from dual incomes in the household, a significant chunk of our budget succumbs to the monthly mortgage, laying bare the extent of our financial hurdles. This scenario highlights an even starker reality for certain siblings/close friends who lack the privilege of a two-income arrangement to navigate their demanding mortgages.

Once the pragmatic matters have been tended to, my intentions lean towards lightening their burdens. Housing looms as the foremost expense for most individuals, and the notion of easing my love ones' lives leads me to consider eradicating their mortgage debts. While I could bestow them with a lump sum to allocate as they please, I'm discerning that the optimal strategy might not be so straightforward from a tax standpoint.

Under the current tax code, dwelling in the home for a cumulative two of the past five years prior to sale renders up to $250,000 of profit tax-exempt (or $500,000 for married couples filing jointly). If the profit exceeds these limits, the surplus is usually classified as capital gains on Schedule D.

To navigate this, my inclination is to procure my love ones' homes, placing each property within a trust and designating beneficiaries of their choosing. I would put forth the stipulation that they have the liberty to reside in their respective homes indefinitely, with monthly rent computed as (property taxes / 12) * 20%. This 20% allocation would then be distributed in a 60-40 ratio—60% earmarked for investment in a low-cost index fund, while the remaining 40% would be set aside in cash to cover essential repair costs.

This approach affords them an infusion of at least $250,000 in cash, granting the freedom to utilize it as they see fit. Furthermore, it secures that their most substantial assets eventually pass to their selected beneficiaries. Ultimately, this strategy would offer them the financial breathing room that they undoubtedly yearn for.

Naturally, should they choose to relocate, I would facilitate the process of finding renters for the properties. Any resulting profit from these rentals would be channeled into a brokerage account, following a 60/40 division. Here, 60% would be allocated to a low-cost index fund, while the remaining 40% would be held in cash to cover property taxes and essential maintenance. The beneficiaries for this brokerage account would align with the trust's designated beneficiaries.

As of the present, the median home price for Fairfax, Virginia in July stands at $924,900. Considering the nature of the trust I'm envisioning, which might be categorized as "complex," the typical cost for establishing such a trust ranges from $5000 to $7000. While this aspect of the plan may come with a significant price tag, it's worth noting that the investment aligns with my newfound lottery fortune.

Total cost:  $9,319,000

• Betting on the Bitcoin hype:  While my belief in Bitcoin remains tentative, I'm captivated by the buzz and speculation that surround it (more thoughts here). Yet, I'm not about to place the lion's share of my windfall into such an unpredictable asset. Presently valued at $26,056.30 per BTC and rumored to reach an astounding $1 million per BTC, I've chosen to invest in a more cautious 38 BTC, aiming for a potential return of approximately 3,742.68%. Though a million dollars holds significant allure, it only accounts for 0.25% of my post-tax winnings—a modest portion considering the extensive returns Bitcoin could offer, albeit with inherent risk.

Total cost:  $1,000,000

• Trust fund babies:  The landscape for the next generation is painted with fewer opportunities, and my worry for them runs deep. We've meticulously charted out their college expenses, but I can't shake off the concern that the road ahead might be tougher than ever before. So, let's extend a helping hand. While some might argue this could foster entitled adults, I beg to differ. It's more about parental influence than the kids' innate disposition, and as a determined caretaker, I'll ensure they're attuned to their privileged position.

Naturally, I won't simply grant them carte blanche to indulge in fleeting gratifications. The trust funds, thoughtfully crafted, are earmarked for life's weighty chapters: home ownership, starting a family, and retirement. These are substantial undertakings, each demanding substantial financial commitment. But the magic ingredient here is time—around 20+ years of it. With the alchemy of time, compounded interest, and the steady historical performance of the S&P 500 index fund, we can imbue these funds with the potential to flourish.

Consider the metrics: The average cost of a home is hurtling toward the million-dollar mark. Raising a single child from birth to adulthood rings in at a substantial $233,610. Meanwhile, retirement ushers in an average yearly expenditure of $52,141 for those aged 65 and above.  

My strategy is simple—taking the largest expense, which in this case is home ownership, and multiplying it by 3 to arrive at a well-rounded figure for the trust fund. This way, the trust could stand as a robust shield against the fiscal demands of life's most significant milestones.

Envision this scenario: If the princely sum of $3 million were to be channeled into a low-cost S&P 500 index fund, over the course of 20 years and accounting for the average return on investment, the principal could potentially burgeon to a remarkable $10,062,667.

Certainly, the aim here is far from embarking on a reckless spree of lavish extravagance. We're not endorsing the notion of casting all caution aside in a fevered pursuit of a fantastical $10 million residence—that would undeniably strain the bounds of reality. Instead, the trust fund assumes a role of judicious augmentation, a well-considered gift intended to facilitate a pivotal life event. Think of it as a carefully devised plan: a resource designed to cover 20% of the home's price, subject to a cap of 30% of the total trust fund value.

When it comes to childcare, the trust fund's purpose is rooted in a sincere dedication to fully cover all valid childcare expenses, substantiated by receipts.  This compassionate provision extends to encompass up to 30% of the trust fund's total value, presenting a comprehensive solution to the pivotal task of nurturing the forthcoming generation.

Yet, intriguing questions emerge: What unfolds if they opt not to tread the path of parenthood? Or what if their journey leads to embracing a clan of ten? Here's where the brilliance shines: the trust fund's essence remains unwavering. It's not entangled in particulars; its essence lies in being a beacon of assistance, a buffer against financial strains irrespective of the chosen routes. Whether their choices align with fewer children, many children, or none at all, the trust's bedrock stays solid, steadfast in its commitment to ease financial burdens for childcare.

As for the distant horizon of retirement, a distinct strategy unfolds. The funds remain on a growth trajectory, compounding over the years until the official retirement age is reached. At that juncture, a monthly allowance is dispensed—a well-earned reward for a lifetime of diligent work and prudent financial planning.

And truth be told, if by some twist of fate the children manage to swiftly deplete the trust fund, there's little I can do in that scenario. It would ultimately fall on their shoulders for not capitalizing on an opportunity that was handed to them.

Total cost:  $15,000,000

Taking into account this expenditure phase, the cumulative total of $25,319,000 still leaves a noteworthy surplus of $355,987,191, ready to be harnessed for an even more substantial impact.

The culmination of these efforts is geared towards building a lasting legacy—a mission powered by the substantial remainder that rests after securing my own and my loved ones' financial well-being. The sum of $355,987,191 holds immense potential, capable of igniting meaningful change even in modest ways.

Yet, I'm not inclined towards convoluted processes that could complicate the act of giving. Simplicity is key. My strategy involves establishing a trust that seamlessly channels monthly contributions to the charities that align with my passion for addressing pressing social concerns. I envision an even distribution among the following charitable categories:

• Education for Needy Kids: Education, for me, is the cornerstone of empowerment. It's what paved my path out of poverty and shaped a more comfortable life for my children, even before the windfall of the lottery. I vividly remember a documentary portraying a Thai charity that offered impoverished children free education. A young boy, shouldering the care of his younger sister due to his mother's addiction, was asked why he sought an education. His response resonated deeply—he aspired to become a teacher and make a difference. What a remarkable perspective! With the means at my disposal, I'm determined to contribute to lifting as many children out of poverty as possible.

• Free School Meals for Kids: I recall my own childhood—subsidized school lunches were a lifeline, yet the financial strain was palpable even after the bills were paid. My parents taught me to say "I eat 25 cent lunch" to the lunch lady. Back then, English was a blur of sounds, and I tried to match them with the Vietnamese words I knew. A friend shared her ordeal of receiving free meals as a teenager—facing shame and bullying. It's heart-wrenching that seeking basic sustenance can invoke such emotions. No child should bear the weight of shame for seeking a warm meal. With kids' propensity for cruelty, why not strive to level the playing field by ensuring all children have access to nutritious meals?

• Creating Affordable Housing: In 2023, in the United States alone, 582,462 individuals grapple with homelessness. While this might not be a substantial portion of the total population, it's a crisis that cannot be dismissed. Could anyone truly remain at ease within the confines of their own warm abode while turning a blind eye to those huddled outside, struggling for warmth? The loss of humanity lies in such complacency, and I'm resolute in not losing sight of my own humanity.

• Animal Rescue: In 2023, an estimated 70 million cats roam homeless in the United States. Astonishingly, only 10% of born dogs find permanent homes, and approximately 3.9 million dogs are abandoned or surrendered to shelters annually. The sheer magnitude of this suffering is heartbreaking. With the means to alleviate even a fraction of this sadness and offer a decent life to even one animal, I refuse to avert my gaze and ignore their plight.

• Combatting Climate Change:  The ongoing struggle between humanity and the forces of nature has reached an unprecedented intensity. Amid this tumultuous battle, my desire burns strong to be a part of the solution, to wield an influence in the fight against climate change. While the exact route to achieve this might not be entirely clear, I'm confident that there exist exceptional organizations equipped with the expertise to drive meaningful change. What they may lack is the financial backing to bring their ideas to fruition.

My vision entails directing these resources towards initiatives that resonate with the urgency of the climate crisis. This could manifest as the creation of urban parks, the establishment of community gardens, and other projects that amplify our efforts to foster a sustainable and eco-friendly environment. In essence, my intent is to provide support, to serve as the catalyst that empowers these endeavors, and ultimately, to contribute to shaping a future that prioritizes environmental preservation.