Congratulations. You’ve just won the lottery. After the dopamine rush and mad thrill of it wears off, I bet you’re wondering: now what? Most people who come into a lot of money either have the benefit of a slow build up, allowing them to learn as they go or, in the case of an inheritance, advice from family. Lottery winners have neither and, consequently, they need a financial advisor for lottery winners.
Luckily, I’ve got you covered.
5 Key Pieces of Financial Advice for Lottery Winners
5. Get a good accountant.
After you’ve won the lottery, the most important piece of advice that I can give you is to find a good accountant. Seriously. On a recent episode of Ice Lake Rebels, one of the show’s participants said that he was a refugee, because his country was trying to kill him.
That country? Sweden, he said. They were trying to tax him to death.
Now, I suspect that his taxes weren’t that bad but, as a lottery winner, yours very well may be. Here’s an example: a business incorporated in Delaware will receive a tax bill saying that they owe 70,000 dollars or more. A good tax accountant (or even a Google search) will bring that down to near zero, due to Delaware’s wonky tax calculation system.
A lottery winner can expect the same sort of thing. Here’s one way to think about it: imagine that you pay an accountant a hefty sum, 10,000 dollars, and then he saves you 100k. Was it worth it?
4. Avoid fees.
If there’s one thing I hate more than taxes (and, boy, do I hate taxes), it’s fees. Fees are the devil. They eat into your money, and your profit, and if you let a financial advisor, they’ll bleed you dry with fees. Fees are the worst.
And fees compound over time. Like I pointed out in my post on the true cost of a financial advisor, for a small account, a 1% yearly fee (a typical financial advisor fee) adds up to more than 250k in the long run. For a lottery winner with an initial investment of 10 million, the math is much worse: after 25 years, 1% in fees reduces the absolute value of your account from 54 million to 43 million.
So fees can be worth 11 million dollars, and this sort of thing leads to all sort of perverse incentives (as I pointed out in my post on the types of financial advisors). Lots of brokers and commission-based financial advisors aren’t out to help you, but instead wish to sell you the most expensive junk they can find.
3. Invest as much as feasible.
When you win the lottery, there’s a temptation to spend a lot of money on the things that you can now afford, that you couldn’t in the past. You what I call this stuff? Junk. You don’t need a boat or a new car.
You need to invest as much of this money as you can. Let’s say that you’ve won 10 million dollars. Now, let’s consider two people: one who spends 10% of his winnings before wising up, and one who spends 90% before figuring out her finances.
In 25 years, the first guy will have turned his 9 million into about 50 million — not too shabby at all. The second gal, who spent most of her winnings? She’ll end up with about 5 million. So, spending 8 million today will cost you 45 million dollars in the future.
Here’s one way to think of it: take anything you want to buy now, multiply it by 6, and ask yourself if you’d rather have that much money in the future.
If you’re still not convinced, read the story of the Stroh family, who managed to blow 9 billion dollars. If they had that amount invested in very conservative securities, they could have earned hundreds of millions of dollars each year, doing nothing at all. Instead, it’s all gone.
2. Be cautious.
This brings me to my broader point: there is nothing better that a lottery winner can do than be cautious. Think about it this way: you understand less about your money right now than you will at any point in the future. So before making any decision, you should wait until you’re better informed.
I recommend taking well over a month before making any serious decisions about your money. More if you’re patient enough.
This is so important. You’re not in any hurry. You’ve already won. Take the time now to do all of this right. Don’t get tricked into spending all your money on things you don’t need or schemes that won’t pay off. Take it one step at a time.
Be cautious. Postpone decisions. Sleep on it. For a month. Or more.
There’s one word that best describes winning the lottery: disruption. Your life is changing rapidly, and this can be extremely stressful. You have to learn competence at and deal with all sorts of problems you’d never thought you would have.
It can feel like your life is falling apart. What should you do about it?
Exercise. There’s nothing better for emotional stability and peace of mind than vigorous cardio.
Want to feel like you’re in control? Get your heart pumping.
Wrapping Up Financial Advice For Lottery Winners
Remember: you’ve lucked out. You have a great opportunity in front of you. Now, it’s up to you to make everything you can out of it. Remember to:
- Get a good accountant.
- Avoid fees.
- Be cautious.
- And exercise.
If you’re looking for a financial advisor, make sure that you’re informed on what’s out there. Read my posts on the surprising truth about financial advisor rates, types of financial advisors, typical financial advisor fees, and questions to ask a financial advisor.