What to do if you win the lottery
By Olivia Maragna
Some can only wonder what it’s like to win $55 million dollars but Queensland’s newest millionaires have had nearly a week for the news to sink in.
Twenty-one state government employees shared a Powerball jackpot win last Thursday, pocketing more than $2.6 million each.
But each will deal with the windfall differently.
Some will use the funds to help out family, while others will think about how this will impact on their future. Some will go on a spending spree and some will unfortunately make some common mistakes.
But does receiving a windfall guarantee you a life of financial freedom?
Most people have dreamed about getting a windfall such as an inheritance or winning the lotto and have already worked out in their mind how they would spend the money. But most will underestimate what should be planned for and can get anxious with the extra responsibility. This is where people can sabotage the windfall and blow it quickly.
Receiving any windfall doesn’t guarantee you a life of financial freedom.
With some good financial advice, a large injection of cash could provide you with a comfortable lifestyle for many years to come – but it usually has to be caught quickly. From the moment you receive the windfall, if you don’t already have a plan in place or good money habits, you could easily turn out to be your own worst enemy and the money may quickly disappear.
Here are some tips if you are fortunate enough for your numbers to come up:
Keep it to yourself
Once people know you’ve come into money, you might find requests for handouts or loans from everyone from charities to relatives or friends. To avoid this, try to remain anonymous if possible or at the very least, don’t flaunt it.
Avoid big changes
Avoid making big decisions for the first three to six months after receiving your windfall. Don’t do anything radical, like quitting your job, buying a home in Vanuatu or buying a luxury car. It’s natural that you will want to splurge a little so set aside a fixed amount that is reasonable.
One of the better ways to use your money is to pay off debt. This may include your credit card or mortgage. Seek advice in relation your investment loans or even your mortgage as an offset account as opposed to paying off the loan itself may be more beneficial from a tax point of view down the track.
If you are not used to having money, it may require some discipline to preserve your windfall. Continue living within your means and consider only spending the income that the windfall produces as opposed to eating into the capital or principal of it.
Seek professional financial advice
Winnings are tax free but if you are receiving an inheritance you may have choices around how the estate is distributed to you. There will potentially be cost, investment and tax consequences. Getting good advice will assist in structuring your windfall in a way that is optimal for your situation.
Setting aside your windfall in a high interest bank account is wise for the first few months while you decide on a plan. In the meantime, ask your financial planner to put together a plan and investment portfolio for your long term goals. Don’t buy investments that you don’t understand, are aggressive or sound too good to be true.
Consider all options based on your risk appetite and circumstances. As an example, if you invested the $1 million at 3 per cent in a term deposit, after a year you would receive $30,000 in interest plus you would still have the $1 million. Alternatively, if you invested it in a portfolio of good quality shares, you could receive about $40,000 in dividends and the $1 million has the potential to continue to grow.
Now that you are worth more, you need to protect yourself from people who may see your deep pockets as a reason to sue you.
Seek advice on whether your investments should be purchased through a structure such as a family trust or superannuation fund. It makes sense to ensure you are not an easy target.
Get your estate plan in order
You’re worth more so revisit your will to ensure your wealth is distributed in accordance with your wishes. You may also wish to consider charities that you have always wanted to assist.
If you are receiving a windfall, consider the ability of preserving this for generations to come which may be the ultimate legacy for the loved one you have received it from or even your own personal legacy.
This article also appears on the Sydney Morning Herald website
- Aspire Retire In the Media
- Financial Planning News and Blog
- Personal Finance
aspire retire financial services
Brisbanes Best Financial Planner
Brisbanes Top Financial Planner
CEO's and Executives
financial planning brisbane
financial planning melbourne
financial planning perth
financial planning sydney
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- September 2016
- July 2016
- June 2016
- May 2016
- March 2016
- October 2015
- June 2015
- May 2015
- March 2015
- February 2015
- November 2014
- September 2014
- June 2014
- May 2014
- April 2014
- March 2014
- February 2014
- January 2014
- December 2013
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- May 2013
- April 2013
- March 2013
- February 2013