So you have just woken up this morning and checked last night lottery numbers and discover to your great surprise that you are one of the two lucky winners. You’ve just come into a windfall of around £33 million. By just about every bodies standards that’s a life changing amount of money. It’s a complete game changer.
I asked a few Facebook friends, what they would do and here are a few of their responses.
Go straight down the bike shop and buy a new bike
Buy that expensive watch I’ve always wanted
Go back to bed
Help friends and family
Just spend it all!
After the initial excitement though, what next. After all that amount of money is not possible to spend is it?
You see, human nature is irrational at the best of times, even though most of us would say we are very rational about money. The reality is this, we all spend money irrationally, but buy the time we actually spent the money we have rationalised it in our heads. The purchase makes perfect sense, right?
The problem we all face on a day by day basis, whether we have won the lottery or not, is money just slips through our hands. It’s darn hard to earn and very easy to get rid of isn’t it. Let me give you an example. Most weeks my wife and I go out on what we call our “date night”. Yes, that’s right, we might have been married for several years, but we still like to go out on a date. So we often go to one of our favourite restaurants, have a bottle of wine with our meal, all the usual meal out things. But have you ever noticed that the bill at the end of the night is always more than you thought it was going to be. Money just goes.
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So how does that relate to winning the lottery?
Well it does, perhaps not so much for someone who has just £30 million, but I think it is entirely possible to run out of money even of that magnitude and here’s how.
The first thing you are going to do is have a little (maybe big) celebration, possibly a holiday, but that’s not really going to make much of a difference or is it? Let’s say, you have that family holiday and of course you are going to be paying for everything and no one, yes no one is going to have to put their hands in their pockets for anything. You could quite easily spend £50,000 on an all-inclusive 7-star holiday for you and all of your family. Because you can’t leave out Aunty Joan and cousin Albert out even though you haven’t seen him for 10 years. That would be just plain mean. Now I can imagine that you are still thinking “what’s the problem?”
The problem is this. “Contrast theory”
So what is contract theory. We are all living a life of contrast theory. What it means is, what we do once, we get used to and that becomes the new norm. So that £50,000 holiday, will probably not be the last. After all, even if your friends and family don’t say anything, in your head you will be thinking that they expect you to help them out and look after them. The last thing you want people to think if you are a “tight fisted multi-millionaire”. Of course you want to be known as that “fun loving, super rich, multi-millionaire, really generous person”.
So how are you going to survive winning the lottery. You got to have a plan. As they say, “if you don’t plan, you are planning to fail”. So here’s my top tips on how to survive, enjoy and most importantly keep your sanity if you win the Lottery.
- CLEAR ALL OF YOUR DEBTS FIRST
- SPEND NO MORE THAN 20% WINNINGS ON YOU NEW HOME
- Within reason CLEAR ALL THE DEBTS OF YOUR IMMEDIATE FAMILY
- You are sure to want to help your family to be financially comfortable. Do not be tempted to give them lump sums of capital other than to settle their debt’s. PAY YOUR FAMILY REGUALR MONTHLY INCOME
- Be very honest with yourself about what skills you have that relate to money. DO NOT ENTER INTO BUSINESS ARRANGEMENTS OR INVESTMENTS THAT YOU HAVE ZERO UNDERSTANDING OF.
- ALWAYS TAKE PROFESSIONAL ADVICE FROM A NUMBER OF PROFESSIONAL ADVISERS (Accountants, Solicitors and Financial Advisers) And be sure of their credibility.
- CALCULATE THE MAXIMUM AMOUNT YOU COULD SPEND A YEAR ASSUMING YOU LIVED TO BE 100 BEFORE YOU WOULD RUN OUT OF MONEY AND STICK TO IT.
The big problem, big, quick money causes is it also creates big emotions not only in you but also the people around you. You will get begging letters, offers that will help grow your wealth even more. But be very careful, as I said before, money can very quickly slip through your hands.Going back to “Contract theory”, over the years, I have worked with a number of professional footballers, who as we all know earn big money. You would imagine that they could never run out of money, but I can tell you that they do and many of them. And that is very often because of the exact same problem. They get used to “contrast theory”. They get used to a certain lifestyle and as they are in the public eye, they are expected to live as certain way. The car’s (expensive fast ones), the watches (usually very expensive as well), the houses, we all know the lifestyle they are expected to live. They can hardly drive round in a Vauxhall Astra can they, nothing wrong with a Vauxhall Astra by the way. So they get used to living a life a certain level and just because they stop playing at some point, doesn’t mean that they can easily return to a normal life. After all they are regarded as role models, so we wouldn’t want them to become normal. We want to keep looking up to them, right? Other than the very top professional footballer, many of them see their asset base fall dramatically once they stop playing and some even run our completely, having to return to what the rest of us call a normal life.The same is true for the Lottery winner. If you were a winner, you would want to keep on being a winner. No one wants their lives to go backwards, so the natural human reaction is to keep spending and spending more. After all, what you did last year, was exactly that, “last year”. So this year has to be even better. That Rolex you bought, just looks a little bit dull now, so the temptation to go out and buy that latest Patek Phillipe watch is a very real scenario.So what would your first move be if you received a big windfall, whether is a Lottery win or an inheritance or the sale of your business, planning to look after what you have is essential if you want to keep your sanity. And it is so very true, money doesn’t buy you happiness. In the case of a Lottery winner, it may mean that your current life headaches are just replaced with new ones.
Action Call
If you have recently come into a windfall, always seek professional advice. A good professional adviser will be able to help you formulate in your mind what you really want in life and help you put plans in place to ensure that your plans can be life long and not for the next few years.The last thing you want to happen is to run out of money before you die. That would be very depressing.
This article does not provide specific advice and you should always seek professional advice from a qualified adviser before making any decisions.
Contact Martin Dodd on 01902 742221 or email him at [email protected] if you would like talk about money issues.
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