Invest Like A Lottery Winner

By David McEwen

Saturday 2nd June 2001

What do people do when they win a million dollars? Most start doing what they have never done before - planning their finances.

Once you have a million dollars, you don't want to lose it and financial security becomes a big issue.

Financial planners and lottery organisers offer the following tips to the suddenly wealthy:

- Hire a good lawyer, accountant, and financial adviser

- Plan long-term goals

- Focus on major financial issues, such as buying a house, retirement, and estate planning

- Assess your working situation. Winners should give themselves time to identify, then ease into, a new lifestyle

There is nothing in this list that the less rich can't also start applying in their lives. Why wait until you've won Lotto? If you start planning your finances now, you will make your own luck.

Some lotteries overseas only pay winners over an extended period - sometimes decades. Others offer to pay out considerably more over a long period than if the winner takes the cash up front.

In many ways, winners of such lotteries are not much different from others who receive a salary, albeit one that you don't have to go to work to receive.

When you add up the total amount people earn in their lifetimes, even those on the New Zealand average wage will pull in more than $1 million.

Therefore, why not imagine you have won a lottery that will pay you a million dollars over the next 20 or 30 years. Congratulations! Now, like any lottery winner, you need to decide what to spend and what to save. Of the amounts you save, you need to decide where to invest it and what level of return you want.

US financial planner Rob Sanford, who specialises in advising lottery winners, says planning is the key to making or retaining money - it's just the scale that changes.

"The lesson is that you have to take care of the money; the money will not take care of you. If you have problems before you win, these will be magnified and intensified after you win the lottery -- not solved by it," he says.

To look at it another way, if you have poor financial management habits now, a sudden dollop of easy money isn't going to help. Also, if you have off. Most people use money to give themselves a nice lifestyle. Happiness comes in achieving the latter rather than the former.

Over the years there has been a number of newspaper articles about how lottery winners act. Most newly rich pay off the mortgage first or buy a new home. Then they splash out on a new car, gifts and maybe a holiday. The bulk of their winnings are then put to work to deliver income for life.

That is only sensible. Even if you are not a lottery winner, you could do worse than pay off debts first and start putting money aside that will produce income.

Don't be like those unlucky winners who waste their fortunes through conspicuous consumption and poor planning. Chances are you have got a million dollars coming to you over the next couple of decades. Enjoy it - but not too much!

David McEwen is an investment adviser and author of weekly share market newsletter McEwen's Investment Report. He is commissioned by the New Zealand Stock Exchange to write an independent personal investment column. He can be reached by email at davidm@mcewen.co.nz.

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