In light of recent lottery winnings, today I reproduce an article from early last year on the subject matter.
IN DIFFICULT FINANCIAL TIMES, you may long to win the lottery, preferably the top jackpot prize. You dream of having enough money, not just to pay your bills but to buy whatever your heart desires.
First though, you would have to brag to all your family and friends about your good fortune. There may be a smug smile on your face when you arrive at work and look the boss in the eye and say: “I quit!” You now have enough money that you can afford to do as you like; there is now enough money to be happy for ever.
Here are helpful pointers to avoid the tragic stories presented in the media about many lottery winners:
First, wait a minute. Stop. Do not make a move or decision until you consult a financial adviser.
A financial expert may help to confirm your initial thoughts for spending your winnings or may provide you with better and longer-term perspectives. The goal would be to maximise the financial benefits of your winnings for your lifetime.
For example: Your winnings need to be considered in terms of your stage in life, age-wise and financially. Are you 18, 38, 58 or 80? Then, what is your current lifestyle and are you planning changes?
What is your current earning capacity and your future prospects? Can you afford to quit? Do you have dependents? Where are your dependents in their stage in life? What are the prospects for your health and the health of your dependents?
Winning $500 000 sounds like a lot of money. For a ten-year period, this amounts to $50 000 per annum; for 20 years, this reduces to $25 000 per year; and if you are a teenager and expect this windfall to last you 40 years, then you are down to $12 500 per year.
Worse still, if you cannot resist the urge to flash your new half-million-dollar status, you will go shopping immediately. Say, you buy that fancy car that you had always wanted; plus you take that long-awaited cruise with your family, along with buying new furnishings, digital equipment, clothes and shoes, you may have only about $300 000 left to plan for the longer term.
If you had won millions of dollars, once you start shopping, your choices would likely start with costlier purchases like a new home, then the fancy car, the trips and so on. Costlier purchases usually involve costlier maintenance and you are likely to end up worse off for the longer term.
A financial planner would help to taper the excitement of winning by examining the broader and longer term perspectives for your winnings.
Then, you should avoid bragging to family and friends or promising them money gifts. Somehow, you will find that they will be looking to you for handouts of free cash, or loans to pay bills or to get them out of trouble. No matter how much you do or don’t give, resentment and bitterness will tend to build in your relationships. A known windfall of cash always seems to sour relationships between the winner and loved ones; so, be as conservative as possible and blame any delay and secrecy on the financial planner.
Winning is exciting. It is up to you to make the fun last by pausing and considering the advice of a financial expert.
Otherwise, it may be better to be like most of us who get great pleasure in just fantasising about winning, spending and living the life of our dreams.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.
