Winning the lottery and winning big. It’s a dream that drives millions of Americans to stand in lines at convenience stores, gas stations, and drug stores hoping against hope. Will the millions-to-one odds fall into place and tens of millions—even hundreds of millions—flood into their bank account?
Maybe you’ve dreamed of such riches falling into your lap, and maybe it could happen. After all, someone has to win and some have scooped up almost half a billion dollars after slapping down one measly buck on the retail counter of an obscure, small town store.
But what do you do if you are one of the rare lucky ones? What if you win $100 million, $10 million, even several million? What then?
Well, after you pick yourself off the floor and wait for your blood pressure to return to normal you’d probably begin wondering how you’re going to manage all that money.
A cruel curse
Everyone has heard the horror stories of big lottery winners that end up broke a few years later. Some fall into bankruptcy and end in worse financial shape than before they purchased a winning ticket.
The sad truth is most lottery winners weren’t wealthy already and have little or no idea how to manage their new found wealth effectively. Too often common sense goes out the window—along with much of the money they won.
Most lottery winners are inundated by requests and demands from family and friends. They’re made to feel guilty. They’re approached by those offering “business opportunities” that are often little more than scams. Investment scams also seem to crawl out of the woodwork.
According to Certified Financial Planner Don McNay at WKYT News, some studies of big winners have revealed the shocking truth that about 90 percent of lottery winners have spent all the money within five years.
Another study conducted by the CFP Board “…highlighted the lack of financial guidance many winners receive from state lottery agencies; estimates show that nearly one-third of lottery winners become bankrupt.”
“Research shows that a significant number of lottery winners lose their winnings within five years,” said Stephen Goldbart, a
psychologist and co- director of the Money, Meaning and Choices Institute in Kentfield, which advices people who come into financial
windfalls. [“Big lottery winners know alot about what not to do,” San Francisco Chronicle]
Although the studies vary, the trends reveal that many who win the really big bucks haven’t a clue how to handle the wealth and soon might feel the money is not just a windfall, but also cruel curse.
Keep it to yourself
If you regularly play lotteries you may win significant money in the future. If you do, here are some tips to protect yourself and your new fortune from crooks, scams and “opportunities” designed chiefly to part you from your winnings.
Never, ever broadcast to the world what you won.
Lottery officials love to throw big winners into the spotlight. And depending how big the jackpot, local or national media may want interviews.
Newspaper reporters will call. Television stations will send news crews. Big winners suddenly discover their life is in an uproar and they have gone from relative obscurity to a celebrity.
Instead of braving the whirlwind and exposing yourself to the sharks and barracudas of the media and underworld, hire an attorney.
Let an attorney run interference for you. Don’t grant interviews. Decline an appearance with lottery officials. It might disappoint them, even make them upset, but it’s your legal right.
Some big lottery winners have kept their fortune by setting up a corporate entity with an attorney and using it to protect their privacy and identities. That one simple step eliminates most of the public attention and shuts the door on the hucksters and promoters that have turned some past lottery winners’ lives into living hells.
Choose the annual payouts
Most financial planners and other money managers agree that taking an annual payout (or annuitizing it) greatly reduces the temptation of blowing the money on million-dollar parties or taking 100 of your “closest” friends on a spur-of-the-moment trip to Tahiti.
Where money management is concerned, annual payouts are the better deal both emotionally and psychologically.
Why is this? It works with human nature.
Thirty years of $5 million payouts are more manageable that a lump sum of $150 million. Plus, if the first year or two you find that you’ve blown all the money, you still have 28 years left to educate yourself on what works and what doesn’t and actually have the opportunity to control your money instead of finding that it’s controlling you.
Create a ‘Board of Directors’
As one of the world’s newest millionaires, you’ve suddenly got more money than most CEOs of Fortune 500 companies. They have a Board of Directors and you should too.
Buy brains and expertise. It’s probably the best investment you can make.
You should already have an attorney, so add a good private banker, a well-seasoned and successful financial planner, an asset manager, tax attorney, CPA and estate planner.
If you’re tempted to be both rich and famous, hire a good publicist too.
Try to avoid the Bernie Madoff types and never put all your money with one company, bank, or individual no matter how great their track record or years they’ve been in business.
The industry of financial services specializes in helping the rich get richer. They know that you might like to take plenty of vacations and travel the world, and buy three exotic sports cars in different colors, but your money must work hard for you around the clock if you’re going to stay rich.
Beware of ‘Sudden Loss Syndrome’
A decade ago, many financial planners debated what was called “Sudden Money Syndrome”: the propensity of people who experienced a sudden monetary windfall to spend themselves broke. Studies were done of lottery winners, contest winners, and people who inherited large sums of money.
Susan Bradley, a financial planner and founder of The Sudden Money Institute in Palm Beach Gardens, Florida, even wrote a book about the phenomenon, “Sudden Money: Managing a Financial Windfall.” Her book zeroed in on workable strategies to help the suddenly wealthy maneuver around the traps and landmines of personal impulses and conflicting emotions many feel when dealing with new found riches.
Yet, during her research for the book she discovered a far more important concept is the “Sudden Loss Syndrome.” Both syndromes parallel each other and the first can easily morph into the second. [MSN Money, “You’re suddenly rich? Bummer,” MP Dunleavey]
A sudden, significant spike in personal wealth can change everything: perceptions, emotions, goals, even sleeping and eating habits. The radical shift can have an impact on every aspect of a big lottery winner’s life and lifestyle.
As Bradley noted: “That’s when I realized that it’s not about the sudden increase in income, it’s about the sudden shift.”