The Capacity to Have

If I gave you a million dollars and told you to hold on to it for a year, could you?

 So first and foremost, hat tip to Brooke Castillo for the concept of capacity to have. 

With that out of the way, let's start at the beginning.

Imagine I came to you with a goldfish and asked you to hold the goldfish for a year and then give it back to me.  Could you handle it?

There might be some immediate panic – I don't have any fish food, I don't know how to take care of a goldfish – but with a quick Google search and a trip to the pet store for food you could probably figure it out, right?

Now, what if I gave you a puppy?  Or a baby?  Same thing, right?  Some immediate panic, a bit of research, and then yeah, sure, you could probably hang on to a baby for a year without giving it away, right?

What if I gave you a million dollars?

What if I said, hey, here's a million bucks, hang on to it for a year, take care of it, and then give it back to me.  Could you handle it?

Would you know the tax implications?  How to invest it?  Where to put it?  You know, you can't just stick it in a savings account, because it exceeds the amount of FDIC insurance, so if the bank shuts down, it could get wiped out.

More importantly, would it bug you?  Would it be like an itchy sweater?  Would you want to use some of it to pay off debt?  Maybe just $10,000 to pay off your credit cards?  And then you could put that $10,000 back before I notice at the end of the year, right? 

Do you have the capacity to have a million dollars?

If you wanted a puppy, I would hope that you'd start doing some research.  You'd think about what kind of dog you want and why.  You'd think about where the dog would sleep and if you need to fence in your yard.  You'd call a friend who has a dog and ask for advice.  You'd start looking in to it, because you believe in your capacity to have a puppy.

Do you believe in your capacity to hold a million dollars in your hand and not immediately spend it or pay off your debt or give it away or do something else to relieve the itch – the discomfort of having it?

Oh, you think, it's not right to have a million dollars, so I don't need to develop that capacity.  I don't need to learn about investing or how to reduce my tax burden or how to hold money without blowing it.

But actually, you DO need to have the capacity to hold a million dollars in your hands and not do anything with it, if you plan to retire.

Based on the 4% rule, you'd need to have $1,000,000 in your account for that to translate to $40,000 in income per year – the most you could take out and know that it would last you through a 30 year retirement.

This feels weird and awful and uncomfortable because it is not something that our ancestors had to do, so we don't know how to do it.  In the past, older people would just live with their children when they got old, or they would get lifetime income from their former employer.  As long as their former employer had the capacity to have $1,000,000 on their behalf, our ancestors did not have to deal with the discomfort of having it.

But the financial rules have changed.  This is something we must learn how to do, if for no other reason than to teach the next generation.

Work on developing your capacity to have a million dollars and prepare for it to come to you just as you would prepare before getting a puppy or having a baby.  It's within the realm of possibility for you.  Beyond being possible, it's actually necessary.