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A Million Bucks Today or $100,000 a Year For Life?

My friend is fairly wealthy. He doesn’t make a ton of money, but he has made some great financial moves lately and now has $100,000 in his bank account because of it. We were out putzing around the other day and came across a sweet lawn mower that would nicely replace his old rickety one that he’s had for years. We drooled over it for a second, but he wasn’t ready to pull the trigger. As we walked away, I said something like, “Dude, why didn’t you just buy it? It’s not like you couldn’t afford it.”

His response?

“True, but think about how much that costs vs. what I typically earn each month. It’s just way too much money.”

Doh… I felt about the size of a pea. All this financial coaching that I do, and I just suggested that he drop thousands of dollars on a whim? All this because he has a load of money in his account. I totally missed the larger picture in this moment. Lucky, he already knew the importance of cash flow.

importance of cash flowThe Importance of Cash Flow vs. a Huge Nest Egg

Out of the two scenarios below, which would you choose?

  1. A lump sum of $1,000,000 right now, or
  2. $100,000 a year for the rest of your life

Some of you might choose option #1 immediately. After all, it’s a million bucks! That’s more money than you’ve ever seen in your life, and if that dropped in your lap right now, you’d be happy, no questions asked.

Others of you are a bit more logical and might start thinking about how many years you expect to live yet, and if the $100,000 per year would end up being more than $1,000,000. In other words, if you’re 50 years old and in good health, then you’ll probably live for another 25+ years, which would equate to $2.5 million, which is obviously more than the lump sum million bucks.

The most nerdy among us would likely take out their financial calculators and start figuring out the time value of money over time. By factoring in inflation from year to year, how much will that $100,000 per year really equate to? Yeah, it’s pretty nerdy, but you have to admit it’s smart.

While the exact answer to this question might interest you, it’s really not the point. The point is to get you thinking about the importance of cash flow vs. a lump sum of money. How are they different? And is one more important than the other?

importance of cash flowThe Reason the Rich are Rich

There is this myth going around that says rich people are born that way. Their parents were rich and their parents parents were rich. The wealth is passed down from generation to generation, and we simpletons therefore have no chance at becoming wealthy. This is totally false. Out of the richest 400 people in this world, only 21% of them inherited their wealth. This means that 79% of these billionaires started with very little and amassed some amazing wealth within their lifetime alone. How in the world is this possible?

The answer is simple – by doing what the rich do, even before they were rich themselves.

Just like my friend, the future rich folks ignored that fancy lawn mower because they realized its cost was much more than their typical earnings each month, which means of course that it would take a long time for them to recover from this purchase. So what do these future rich folks do instead? They totally ignore the massive amount of cash in their bank account, they fix their used mower for just a few bucks, and then they invest the savings into a wealth-producing asset. In other words, the rich are not just trying to stock-pile money, they are trying to increase their monthly cash flow by investing their cash. And, with the increase in cash flow each month, they can invest in greater and greater assets that produce more and more money each month! This is why I harp on the importance of cash flow. With it, can become rich. Without it, you’ll stay poor for life.

Abandon Your Poor Mind For a Rich One

I have countless friends that go out and buy something every time their bank account exceeds a thousand bucks. Now, I credit them for being able to get their account up to a grand – that’s a step above many Americans – but when all you do with your money is buy sound equipment, televisions, and video games, you’ll never become more wealthy than you are at this moment. The cycle of save, buy, earn, save, buy, earn will never turn into an abundance of money.

If you want to become wealthy, you’ll need to turn your focus from a “lump sum” mentality into a mission for cash flow. If you can build your discretionary cash each month from $200 to $400, and then $400 to $800, and $800 to $1,600, think about what this could do for you! Within just ten years, you could develop a cash flow of $10,000 per month. Do you think you could live comfortably on that for a while?

What do you think about the importance of cash flow? What are you doing about it? 

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My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. I was looking at our net worth update last month and well it is getting pretty large I know it’s peanuts on a cash flow perspective.

    • Right. The nice thing is, if you continually have more cash coming in, you never have to worry about your net worth, because it will keep going up!

  2. I’d totally take the $100k/year just to “retire early” and be done with doing things strictly for money 🙂 So in a way I’m a bad boy since I’d be spending a lot of it vs investing like your smart rich people in this scenario, but then again the point of $$$ is to live a good life so you’d accomplish that one off the bat. (And probably with a million too, but you’d have to start investing it and wait a bit until pulling that ER trigger).

    Fun things to think about regardless – where do I sign up? 🙂

    • You renegade, you. I’d take $100,000 a month, live on $30,000 of it, and invest the rest into one rental property a year. After about 10 properties, and a $200,000 a year income, then I’d probably stop worrying about money for good.

  3. It’s all about the cash flow! Right now I’m trying to improve my cash flow by researching ideas for multiple streams of income.

    By the way, I like that you were candid about the advice you gave your friend! Sometimes you just takes another perspective to be like, “Ohh…yeah. You’re righht!” Haha 😉

    • Thanks for the comment, Niomi. I’m definitely not always right (case and point in the article), but I’m quick to understand my mistakes and improve myself! Between my fiance and I, we’re going to have a pretty solid cash flow, but without a plan, it could all go to the crapper. With a plan, however, we could improve our cash flow with investments and become incredibly wealthy. The good news for my readers is, I’m going to teach everyone how we did it.

  4. I agree with J Money, I’d take the $100k/year and stop working immediately. We’re only about 3 years from our FIRE date, so this would be more than enough to move on to the next phase of life.
    Good perspective with the article.

    • The closer I get to financial independence, the more nervous I get about it. But yeah, if I had $100,000 coming in per year without doing a thing, I guess the decision would be fairly easy.

  5. $100k a year forever sounds pretty darn good to me! I think if I got the lump sum, I would be more inclined to spend more than I should because of all that cash in my bank account. While $100k a year is a tidy sum, I’d be less inclined to go crazy and ignore the cash flow perspective you describe.

    • Exactly, Kurt. Cash flow is important. Lump sums are dangerous.

  6. I think that mastering cash flow is much more difficult than mastering wealth. A poor understanding of cash flow is how people become house poor, or how even high income folks find themselves in a pinch.

    It’s not enough just to have wealth, you need to be able to deploy it and have it reproduce for you.

    Cash flow is the exact reason that my husband and I are doing the majority of our renovation ourselves. It forces us to pause with each decision and be sure that it is the right financial choice for us.

    • It really is. I actually just got a raise at my job. Even though I am a cheapskate and financially minded, I still can’t help but think about increasing my standard of living! Crazy. But, then I think about what my extra money can do for me if I invest it today and the decision becomes a little easier.

  7. I’d take $100k/year any day than having a massive windfall of $1M. With a lump sum you’re not likely to spend that money quickly.

    • Are you saying that almost all humans are too weak minded to handle a lump sum like that?

      I always told myself if I fell into a million bucks, I’d stash it in a safe account that yielded some interest and then consider my options for a year without touching it. That way I could be certain that I wouldn’t just blow it on something senseless. I think everyone should make this decision before knowing anything about a windfall.

  8. Id take the cash flow any day as the 100K will be a million in no time. (If invested wisely) Granted if someone takes the million, I think they can live off the 40K in income it produces quick nicely.

    • Good point EL. Take the million, live off the $40,000 of interest, and then maybe produce a little more by doing what you love.

  9. I’d have my cake and eat it too: I’d take the $100K/yr, live off half and effortlessly build up the second option of $1,000,000 for whatever I’d want to do with it…or just to know that I’m a millionaire ;).

    • Nice idea. So you could easily build up the million bucks in 20 years without any interest. With interest, you could probably do it in 10 years. Then you’d have cash flow AND a lump sum. I like it.

  10. Nerdy approach for me. I’d take the million. Even after losing 39% to Uncle Sam, I could invest the rest. My return would exceed the 100k very shortly. While I wouldn’t leave my job immediately like the 100k/yr folks I could leave within 6-9 months once my investment started throwing off cashflow. The 100k per year would stunt my growth due to economies of scale using leverage.


    • That is the key. Keep working to build up some huge wealth and then live with absolutely no effort. Or, just do what you love even if you don’t get paid.

  11. 100K sounds like a nice cash flow to have. When talking about early retirement with friends/co-workers I used to ask would you rather have your current salary for the rest of your life needing to work or 5 million dollars by retirement age? It’s an interesting thought process to go through.

    • *without needing to work

    • Very cool. My friends do not ask those profound questions… I think I need some new friends.

      • I think it’s just me asking the questions, so I’ll loop you in next time;)

  12. I’m definitely on the $100k bandwagon. It offers consistency and the ability to sleep at night much better than $1M ever could. A $100k per year annuity is the ultimate early retirement. Spend it or save it.

  13. Well, whether you intended it or not, from a financial point of view, you’ve just described the difference between an annuity and investment return. Most affordable annuities are not indexed for inflation, so $100K/year is like a non-indexed annuity, and the value of that $100K will decrease each year due to inflation. However, the lump-sum can be re-invested and the investments could theoretically keep up with or outpace inflation.

    A reasonably-priced $100K/year annuity would probably be about $1.8M for a 50 year annuity length. So, the $100K/year seems like a better deal, even if it’s value eroded over a 50 year period, because the current dollar value purchase price is greater than the lump sum now.

    A more interesting way to phrase it would be to give the same current and future value amounts (e.g., roughly $50-60K/year for life or $1M now), so that the issue is more about lump-sum vs. income stream. Of course, you could still argue whether lump-sum investing would outperform annuity returns (most like the answer is yes).

    • Good point, John. Either way though, the motto of the article is to mind your cash flow. If you have great cash flow and don’t blow your savings on big-ticket items, then wealth is really quite easy to create.

  14. I would definitely take $100,000 a year for the rest of my life. Although, even if I had that kind of money coming in at all times I don’t think I would ever stop working or investing. It’s not because I believe you could ever have enough money, but more so because it’s challenging and gives you the ability to leave a legacy. I don’t think I would ever be happy by being stagnant.

    • Hi Nate. Thanks for the great comment. I don’t think anyone should really stop working. Sure, they can have a ton of money coming in, but no one should just sit and watch TV all day. Volunteer, be a mentor, and keep learning! Just because you’re not earning an income doesn’t mean that you’re not working at something.

  15. Powerful post. A large amount of wealth with an unhealthy cash flow means desperate times ahead. Right now, my net worth is high but my cash flow isn’t too amazing. I’m really focusing on income so I can keep my net worth at a healthy level.

    • Great point Will. Big cash with small inflow equals problems. My net worth is becoming larger and my income is about to get huge with my future wife’s earnings added to the mix. BUT, there will soon be kids and that income will likely plummet. We need to have a plan in place for that or we’ll end up eating away at our savings bit by bit. It’s a great lesson for all of us just to think about what’s going on with our finances.

  16. Of course you don’t need that fancy lawn mower with all it’s crazy gadgets. Just get a sturdy and reliable one, and you should be good to go. There is nothing wrong with getting something at a good price that is okay vs something overpriced that seems awesome.

  17. Love your point about the popular myth about the rich inheriting wealth. Saw a study from Williams Group wealth consultancy the other day where they found 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third. Pretty crazy stats if you ask me !

    • True! Most of the wealthy get there by hard work and consistent efforts. I’m always impressed when I meet a wealthy person, because most likely they got there mainly through their own efforts.

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