IntroductionAs part of our "If You Won" series, we had planned to one day write a number of articles about what you should do if you actually won the lottery jackpot. We still intend to write this series, but since a young lottery player recently won a large PB jackpot, we thought it more timely to address his situation now. Our objective herein is to offer a conservative opinion that may help this winner (and others) sustain a true lifetime of wealth and happiness.
Brief Background
A young 19 year-old lottery player hit the $35.3 million Powerball jackpot on the May 17, 2008 drawing. In the Powerball.com release statement, the player says he intends to share: his prize with his family and invest the money". Looking at the Winner's Stories page, we learned that he elected to receive the cash payment of $17.175 million. After paying his Federal taxes, the player will get to keep an estimated $11 to $12 million. (For purposes of the remainder of this discussion, we will assume he retains $11 million to spend and invest.)
Wow, $11M is a lot of Money!
Not Really! With today's life expectancy of 80-100 years, our young 19 year-old can realistically live for another 70 to 80 years. This money has to be conservatively managed in order to provide continuous income throughout his lifetime. If properly done, this young man will always enjoy his riches and perhaps pass on a legacy to his heirs. How can he do this?
By remembering and obeying our following advice.
Your life is changed forever.
First and foremost, you must realize that everything is now different. Your job now, and forever, is to manage this money. There are too many stories of people who won the lottery and spent it all. If you blow $1M per year, you will be out of money in 11 years, at age 30! Don't become another "lottery winner" victim. Instead, dedicate you life to managing the financial welfare of yourself. Yes, many will think that you are stingy, but you must think of yourself, not them.
We believe that you must prepare yourself, and know what may lay ahead. For this, we have identified 7 rules that you should follow:
- Educate Yourself
- Avoid the Vultures
- Resist Temptation
- Be Conservative
- Protect Your Money
- Seek Qualified Advice
- Decide for Yourself
Now that you have this money, you need to educate yourself about money. You need to understand mathematics, and learn about various investment vehicles. To to this, we urge you to attend college and learn about business. If you are already attending college, Great, Stay there and complete your degree. If not, enroll in college today. Meet with the college admissions staff, and explain your situation. Tell them that your situation has changed and that receiving a degree is now an important priority in your life. You'll have to work hard and learn, but so what, you have a concrete reason to do so, and a real need to know. As a start, read the book: The Millionaire Next Door. You're now one of them.
2. Avoid the Vultures
Now that you have a sizable stash, realize: Everyone Else Wants It. This goes for family, friends, business owners, salespeople, bankers, insurance salesmen, financial advisers, charities, religious organizations, con-artists, and more. For now, avoid them all. Change you phone numbers. Park you money in short term interest paying accounts, and take time to think. Don't be imitated or embarrassed into forking over your hard-earned winnings to fast talkers or down-and-outs. Remember that when you are broke again, nobody will care about you or want to be your friend again. So, avoid them all.
3. Resist Temptation
On the front page of our website, Lottery Power Picks, we highlight the 4 things most people want to do if they win the lottery: (1) Buy a new car; (2) Buy a new house; (3) Travel; and (4) Invest. These are all great things to do, but resist the temptation of unwisely overspending. Remember Rule #2 above. The salespeople in all these businesses are out to make a living. If you have money, they want it. Forget buying a Hummer or Ferrari; gas prices and insurances are far too expensive. Don't buy everyone in your family a mansion. One day you'll need to buy a house of you own. Don't travel First Class, that's a waste of money, and join the travel rewards programs to get free rewards. Stay away from stocks, options, swaps and more until you understand what they're all about. Lastly, don't throw continuous parties, treat everyone to dinner, and buy drinks for the bar just to look like a big shot. Spend wisely and thriftly.
4. Be Conservative
Initially invest your money in short to medium term interest bearing accounts. These can be banks accounts, CD's, US Treasury Bills & Notes, or Municipal Bonds (not annuities). If you simply deposit $10 million (and keep $1 million for a rainy day) into one of these, at: 3% you'll earn $300,000 per year; 4% you get $400,000; and at 5% you get $500,000. Pay your taxes, reinvest 1/2 of your interest, and spend the rest. Do this, and you earnings will grow, and you'll have lots of fun not working. Unlike investing in stocks, you'll never lose your money in these risk free type vehicles.
5. Protect Your Money
Who knows what the future holds. On day, you get married. Then a few years later, your wife files for divorce and wants half of your money ($5 million gone like that). To avoid this, think about having a pre-nuptial agreement. Also, think about putting the money into a trust. This may protect you and your assets from future lawsuits from a wife, other family members and friends as well. Also, begin to shop now for and buy a Personal Liability Insurance which will protect you if someone wants to sue you (this is cheap); and, make sure you have enough insurance on your car.
6. Seek Qualified Advice
We're not experts, but know that other people are. Seek FREE qualified advice from various professionals on every subject. For example, you will now need an accountant. Talk to a few, and find out what they do, and what they cost. You don't want to spend too much ($250-$1000 per year), but you will need to retain one of them. Look and ask around for other people who know about trusts, insurance, banking and investing. Don't stick with friends or family, they don't need to know your business. Qualified people will be happy to work for you at reasonable costs, and help you retain your winnings.
7. Decide for Yourself
If you follow the above 6 Rules of Advice, you'll have the confidence and understanding to buy, spend, invest, and enjoy what you want. If you listen to other people, and do as they say, you will most likely spend or lose most of your money (that's not what you want). Instead, listen to those who give advice. Analyze what it will cost you. Determine what you have to lose. Choose the best action that will insure your everlasting happiness and protect your money. You may make mistakes along the way, but in doing so, you'll learn. You won't be a fool for blindly doing what others told you to do, and you'll never be mad at anyone except yourself!
Lastly, We Offer You Our Best Wishes
We hope you have enjoyed our advice and have gained a bit of confidence on how to approach your future. Remember your goal is to have that money forever, and to live off the interest. With $11 million, there's enough money for you and your future family (wife and children), but not enough to support everyone else in the world! This may sound cruel, but it is all yours. Make sure it stays that way!
Congratulations to You
and
We Wish You the Best in the Future.
and
We Wish You the Best in the Future.
J.L. ..........
PS: Think about starting a daily journal, and keeping notes about all your offers, adventures, etc. Then, someday, 5 to 10 years from now, write a book on what it's like to be a Lottery Winner!
Here's another link that provides good advice:
Regular Bimonthly Focus for June : Analysis of the Powerball Cash verses Annuity Options
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