Did You Win the Lottery? Oh, Really?! But Where to Invest?
Who hasn’t dreamed of winning millions in the lottery? Any lottery! It’s a popular fantasy and for some, it comes true. I’ve always envisioned myself escaping the rat race, telling my boss what I really think of him, and then handing out hundred dollar bills to the homeless on the street! Okay, a little far fetched, or something you might see in a movie, but the idea of financial independence is universal.
But when the cash comes in, what are you really going to do with it? What should you do with it? What’s the smartest and most prudent way to not end up broke again in a few years?
First of all, as much as you might think you can lay low, and avoid having every friend or relative you’ve ever had come a-knocking, it’s not likely. Most lotteries, in many countries, are obligated by law to publish the names of the winners. The best first step is to…
1. Slow Down
Invest in time. Don’t take off for that much anticipated trip around the world, or the buying of a pricey new car that will sit in your driveway and attract a lot of attention. Start a list, on your own or with your partner. Identify the things you would like to have or do now, things in the next few months and then the long-term plans that can wait a year or two. I would strongly recommend finding a reputable financial consultant to help you navigate through the payout plans, the tax laws, and to advise you on mortgages, purchases and investments.
I know, it may feel like taking candy away form the baby, but some spontaneous indulgence can cost you in the long run.
2. Use a High-Interest Savings Account
What? It would seem like plunking down millions into the same place your parents encouraged you to feed after every pay cheque, but it may take you some time to make decisions about your spending. While the rate may seem like a weak move because the rate is low, even one percent on millions can generate plenty of cash.
3. Invest in Dividend-Paying Stocks
You can actually make the millions (if that is what you are blessed with) last for generations. Dividend paying businesses and companies pay shareholders a set amount every quarter or year. Your money will keep paying you!! Typically, this is what people invest in to make money to rely on in their retirement, but a lottery winner with millions could make even MORE millions with wise investing.
Beware of the risky businesses. Go for the sure things recommended by a reputable financial advisor…not your brother-in-law and his new fangled business idea or pyramid scheme! Best of all, the risk of reputable businesses gong bankrupt is very small. Making as low as five percent in an annual yield will make you more than enough money to make your treasure last!
4. Buy Your Dream House – IN CASH!
One of the first pleasures we want to indulge in when suddenly having the funds, is to improve our living conditions. I would buy that hot tub in a blink! Naturally, don’t go overboard and think seriously before buying more space than you can reasonably accommodate, decorate or maintain. Pay for it in cash, otherwise you’ll be locked into a mortgage and either you’ll end up paying part of your winnings to the bank in interest, or if you end up wanting to break the mortgage, you’ll owe a hefty penalty. You have dreamed of being mortgage free…go it!
5. Invest in Those You Love
How incredible it would feel to help your family members with tuition, or their mortgages, or debts, and the best way to do that is not cut them cheques. Instead, go to the bank and set up a donor-advised fund. This will allow you to donate money to whomever you please, individuals and organizations, but while you’re doing this, the bank can grow the money…and you ‘ll have even more to give away! When my uncle won some money, I let him pay my last tuition payment. That way I didn’t have to declare his gift as taxable income. You may also want to consider setting up a charitable foundation, and either do the administration and accounting yourself or hire some to do it for you.
6. Invest a Lot, but Diversify
We’ve all heard the adage about not putting all our eggs in one basket. And we’ve all heard about hedge funds or stocks or bonds that have gone belly up! Don’t let that be your story. Find a reputable financial advisor, or two or three so you can compare their advice and not end up with losses you can’t recoup. You’ll learn about time deposits, certificates and money markets, bonds and retirement plans. Set up trusts for children and grandchildren. That’s what the super-wealthy do. So join their very exclusive club and invest smart!
Go on a Shopping Spree – A Reasonable One!
That may seem like an extravagant solution, but if you don’t respond to the strong impulses that will come with your new found wealth, it may get harder to restrict yourself and to make poor decisions later. But buy smart. Cars, for example, lose their value as soon as they are driven. Vacation properties require taxes. And when you spend, make your money work for you. For example, use a credit card with a high point value, and pay it off each month. Reap the rewards of the points or donate them.
The wealthy know that it “takes money to make money”. They have been doing this for centuries. There is plenty of knowledge out there from a variety of sources to provide you with the information you need to spend your money.
