Upon winning the second largest lottery in US history ($758 million), Mavis Wanczyk immediately quit her job.
She also decided to take the lump sum payment of $480 million which, after taxes, amounted to just $336 million (R4,35 billion).
While taking annual payments is often a safer option, as there’s no guarantee that you will invest the lump sum wisely, annual payments also reduce the likelihood that you’ll squander the money as so many lottery winners have in the past.
So before Mavis goes spending in the name of celebrating, after beating those long odds, there are a few things she needs to consider.
Bloomberg decided to weigh in and offer up their advice, so here are five tips from them:
Be wary of strangers, acquaintances and distant relatives:
Lots of people come out of the woodwork after something like this is publicized; avoid all of the long-lost high school friends and distant relatives who seem to have suddenly recalled how close the two of you are. If you make any promises to these folks, you could find yourself spending time and money defending yourself in court against the ones who turn out to be parasites. Get an unlisted phone number, move into a hotel two towns over for a few weeks where no one can find you, and sort things out.
Create a budget:
Develop a long-term budget establishing what you are going to buy in the short term (real estate, cars, boats and other toys) and what you are going to live on. It doesn’t have to be etched in stone, but it shouldn’t be too easy to ignore.
Get some help:
Inexperience is dangerous; most lottery winners, like many highly paid athletes, have little background managing big sums of money. It’s a daunting responsibility that can overwhelm one’s better judgment. Find some trustworthy people, including a good lawyer, accountant and financial adviser. Ask the smartest wealthy people you know who they use for each. Speak to at least three people from each profession, or more, until you find someone you trust and are comfortable with. Oh, and never give power of attorney to anyone, ever.
Money is a tool; what do you want to accomplish with it?
This may be the hardest thing about sudden wealth. Do you have a favorite charity or cause you support? Are there children or other relatives you want to help? You may end up establishing a charitable foundation so that any wealth transfers are done in the most cost- and tax-efficient way.
You want a simple and inexpensive plan to help you achieve your goals. The right portfolio mix should reflect those objectives. In a high-tax state like Massachusetts, a municipal-bond portfolio will generate income that’s exempt from federal and state taxes. Based on a return of 2 percent to 3 percent, that could still cover a very lavish lifestyle. The traditional 60 percent stocks and 40 percent bonds should yield an annual return of 5 percent to 6 percent on average. If you are putting money away for future generations or some philanthropic endeavor, then a more aggressive mix of 70-30 or even 80-20 will generate higher returns, but with greater risk and more volatility.
If you ever find yourself on the winning side of an extremely large amount of money, follow those five steps so you don’t end up with nothing in a couple of years – also known as the lottery curse.
And when it concerns investment, estate planning and all the rest, you can get handy advice from Consequence.
They believe that the consequences of decisions made today will bear fruit over the years, based on the sound principles applied at their inception. Lottery winners signup here.
So, while most of us aren’t too sure how money works, it’s great knowing that there are others out there who do.
Tata ma chance, friends.
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