WHAT is the best way to invest your winnings after striking the lottery? By buying more lottery tickets of course! Actually, don’t do that.
The value of a lottery ticket is negative: the fewer you buy, the richer you will be.
Just like with any casino, on average, you will lose money. Unless, of course, you are on the other side of the gambling game: the casino owner.
The best thing is to just fantasise about what it would be like to win the lottery and what you would do with the money.
Winning the lottery is not all that it’s cracked up to be anyway. There are numerous stories about lottery winners going broke within a few years and being forced to take up their old jobs again, living pay check to pay check, moving back into their parent’s home or even declaring bankruptcy.
In fact, lottery winners are – despite just winning vast amounts of money – more likely to declare bankruptcy than the average person.
Why do lottery winners lose it all? It’s a combination of stupid spending habits, a lack of financial planning, financial illiteracy, bad investment advice, gambling, addictions and divorce. Worse still, some end up in jail for tax evasion, they commit suicide, get murdered or suffer a drug overdose.
As American comedian W.C. Fields describes it: “I spent half my money on gambling, alcohol and wild women. The other half I wasted.”
Winning the lottery has such an impact on people’s lives, that financial planners have made it into a running joke, “if you have an enemy, give them a lottery ticket.”
But how is this relevant for me, you might ask? Perhaps you don’t even play the lottery or you have accepted the fact that the chance of winning the jackpot is smaller than a plane crash or getting hit by lightning (not to mention the much more likely event of being involved in a serious traffic accident).
Well, perhaps there are similar situations in which these dangers could also apply to you.
For instance, you could suddenly land a huge chunk of money from a life insurance policy, an inheritance, a larger than expected sales bonus, a rare antique or collectible you find in your cellar or a real estate appreciation.
How do you prevent going from jackpot to jack squat?
* Talk to a lawyer, financial planner, tax advisor and accountant first: understand taxes and create a trust.
* If you have the option, take monthly or yearly pay-outs, instead of a single lump sum.
* Try to remain low-key as not to attract attention form the wrong people. If you can stay anonymous, do that. Forget social media, as seductive as it might be. Otherwise, you will never be able to get your old life back.
* Whether you want to or not: learn about money yourself.
* Pay off your debt and set aside a portion for your children, education and retirement.
* Be sceptical of new friends, or old friends who suddenly want to "reconnect".
* Yes, you can pay your auntie’s medical bill, but draw a clear line. You are not Santa Claus and can’t afford to buy houses, cars and phones for your extended family. Learn to say ‘no’.
* Stay disciplined and don’t start spending on booze, drugs and women (female lottery winners rarely start spending money on men).
* Don’t make immediate radical changes to your life, even though you might like to give your boss the finger. Most happy lottery winners actually like to keep their job and keep some structure in their daily lives.
* Definitely splurge a little on that holiday you have always wanted.
* Be positively paranoid of the intentions of the investment gurus.
Mark Reijman is co-founder and managing director of https://www.comparehero.my/ dedicated to increasing financial literacy and to help you save time and money by comparing all credit cards, personal loans and broadband plans in Malaysia.
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