Today, I spoke with a blue collar worker in his mid-thirties. He was asking about a small pet services business and wanted to know if he was getting a good deal. During our conversation, we realized the business owner is simply asking to much for the business. So, at one point, I asked him how much he had to invest. “8.8 million dollars,” he responded.
He is considering buying a business for about $3o0,000 and expects to cash flow about $65,000. That’s if he and his wife each put in 40 hours a week!
What would you do? I responded by asking if he knew how much 3% of 8.8 million was. He is a blue collar worker and probably earns about $40,000. He come upon 8.8 million in inheritance and wants to know what to do. Can you imagine? Anyway, I told him that 3% of 8.8 million dollars is $264,000. The reason I told him that is because if he puts his money in an annual interest bearing account and gets 3% interest, he can take $264,000 every year and NEVER touch the principal. In 400 years, he’d still have 8.8 million dollars. If he got 7% interest, the numbers get silly to the tune of $616,000 annually. If he takes only $250,000 and banks the rest of the $616,000, His 8.8 million turns into over $45,000,000 in 20 years. Remember, he is still taking home $250,000 annually!
For some of you, $250,000 isn’t enough to live on. For him, he’s in his mid 30′s and has gotten used to living on $40-$70K a year (wifes income added). At a minimum, it’s an almost 4x increase in annual income.
I advised him to sit on the money for awhile. I hope he doesn’t do anything hasty…like buying a 40 hour pain in the butt pet services company so he can add an extra $3-4K monthly to his $50 million he’ll have by the time he’s 55.