Imagine What A Buck Could Do Before You Gain that Wealth

by Vered DeLeeuw · 19 comments


Have you seen the latest commercials for the California Lottery? I think they’re awful.

The campaign has two versions that I know of: One where a dad, who apparently won the lottery, is arranging for his daughters to have snow in San Diego via snow making machines. The kids are beaming of course. His wife asks him, “Will you do this every day?” And he replies, “Maybe.”

Another version: A lottery winner builds a large baseball stadium just so his family could play together at their reunion. His dad tells him, “You didn’t have to go through all this trouble,” to which he replies, “What trouble?”

Lottery Is About Fantasy

I realize the lottery is all about fantasy and these commercials are creating a fantasy, but these commercials are problematic because they basically tell people that once you win the lottery, you get to splurge. Sure, the splurging here is for the benefit of others – the winners are making their family members very happy – but they are still being extremely wasteful.

It all depends on how much money one wins, of course. If you win 100 million dollars, then yes, you get to be wasteful and still likely not run out of money. But if you win five, ten, even 20 million dollars, there’s a very real possibility that you will run out of money fairly quickly if you don’t realize the basic rule of handling a lump sum windfall.

The Right Way To Handle a Financial Windfall

A lump sum windfall should be invested. Yes, you can take a portion of it and have fun with that.  But the majority of the money should be invested, assets allocated according to whatever asset allocation you feel comfortable with (Personally, I like a mix of 40% stocks, 30% bonds, 10% gold, 10% REITs, and 10% cash). You then live off the interest that the bond portion generates, allowing the stocks to appreciate long-term, each year selling just enough of the stock portion (which tends to grow faster) to stick with your asset allocation plan and refill your bond cushion.

To me, having a large sum of money is not about showing off and doing crazy things that will put you in danger of eventually running out of money.  Having a large sum of money should be about peace of mind and freedom. Peace of mind, because you know your basic needs and beyond will always be taken care of with the right asset allocation, protecting yourself from inflation and from the stock market inherent volatility. Freedom, because you can pursue your passion once your basic needs are taken care of. You may even work if you want to, but you can choose work that you like and enjoy.

The Risk: Losing It All

If you ever receive a large lump sum of money, whether through the lottery, inheritance or another huge bubble in the stock market, you should invest it wisely, live off the dividends and interest, and keep the principal intact. Too many lottery winners have lost everything because they didn’t realize this is what you do with large amounts of money. Instead, they just freely spent the money, until all of it was gone.

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{ read the comments below or add one }

  • Blue Spyder says:

    I’m personally waiting to see Paris Hilton and the other snobs go broke, on that day I’ll die a happy man…

  • Jill says:

    First, I do not play the lottery that often, but I always imagined that if I won, I would put the money away in an account that pays a decent amount of interest and live off the interest each year. I think for many our desires or fantasies definitely gets the best of us. I also think when I was younger, I would’ve probably gone out and spent it, but with age and “life” you realize other possibilities or what I like to call financial responsibility.

  • Mark says:

    I think that the problem is that since the wealth comes so easily that people do not value it. They splurge and the money goes away just as easily as it came. Our society places such a high value on material goods that people want to get rich so that they can buy flashy possessions. The irony is that you would actually be better off financially by not buying the flashy item to show people that you are doing well financially.

  • ABD says:

    I think that the couple in the story “The $30,000 Bequest” by Mark Twain had the right idea for how to handle a windfall (http://www.mtwain.com/The_$30,000_Bequest/0.html). They just had trouble actually getting the windfall to carry out their plans with 😉

  • Nick D. says:

    correction…..sorry i meant 0% bonds

  • Nick D. says:

    I agree. being “showy” with your money is never good. I would second guess your mix of investments however….(40% stocks, 30% bonds, 10% gold, 10% REITs, and 10% cash). My mix would look something like this 0% stocks, 9% bonds, 0% gold, 0% REITs, 95% dividend paying whole life insurance, 5% cash.

    If you had an agent help you set up a whole life policy that understood the infinite banking concept you could literally become your own bank. you would never have to rely on anyone else for money, and you wouldn’t have to wonder if your money was going up, down, or sideways.

    just my opinion.

  • Steve Jobs says:

    I had seen and know of people who had won the lottery and lose it all in a few years. It seems it is very easy for them to spend the money and not thinking that money can be gone as quick as he had it. Then I thought, it is easy to spend prize money since it is not hard earned while money from your own perspiration is hard to spend.

    • MoneyNing says:

      It really depends on the person. Some people would spend it all because getting the windfall seems easy, while others would save it because they know it’s only an one time deal.

  • Jenna says:

    Making smart investments is key. Lots of professional athletes make investments, are they good ones? I’m not entirely sure.

  • Stella says:

    When the state of Virginia first implemented its state-run lottery, the prizes were modest in contrast with the multi-million payouts of most lotteries and they created a whole marketing campaign to promote that fact.

    In one ad they had an office employee/new lottery winner striding into the boss’ office saying, “I JUST WON THE VIRGINIA LOTTERY AND I’M HERE TO TELL YOU…have a nice day.” And then he’d turn and scurry out of the office.

    So funny…

  • TwinsMama says:

    I always said if somehow I came into a windfall I’d take 25% and start a business. I know I wouldn’t want to work for someone else when I could run my own business.

    Then I’d take 50% and invest it in low risk yet moderate growth investments. And the other 25% I’d invest in high growth and potentially high risk investments.

    I’d then live off the earnings. I just can’t imagine waking up one day to realize I’ve lost millions.

  • Briana @ GBR says:

    I think that’s what I’m most afraid of about winning the lottery. You have to have a plan. I think, sure, spend some of it on the things you want, but also save lots, invest, and donate 🙂

  • Money Obedoience says:

    I think people who blow it all on their dreams forget that dreams cost a lot of money to maintain. For example, when you buy a Maserati because you have some windfall cash laying around, you need to remember that this car costs more in insurance, regular maintenance costs, gas, and so forth than the Toyota Corolla does. The same goes for the dream house and any other thing one dreams of. Before you know it, you can’t keep up with regular everyday expenses and you go bust.

  • Miranda says:

    I’ve heard it said that someone who understands money can take a dollar and turn it into wealth, while someone who doesn’t know about money can take a windfall and lose it all.

    • MoneyNing says:

      That’s such a true statement. It’s amazing how many times you hear of people losing everything they have when their “everything” can probably last 10 life times. Lottery people, athletes, music artists all come to mind…

      • vered says:

        I always wondered about that – how could someone possibly spend 20 million dollars until nothing is left – but when researching for this article I realized how they do it – they don’t invest, and they don’t limit their spending to the proceeds. Instead, they just eat at the principal until it’s gone.

        Plus, I guess many adopt an extremely lavish lifestyle and never try to budget. A mansion, a beach house, a few sports cars, full time help around the house, a personal chef, a personal trainer, gardeners, pool maintenance, flying first class, staying at the most expensive hotels, buying designer clothes… you can easily spend north of $1M a year living this type of lifestyle. Many celebrities can afford it, but many others can’t – they just don’t realize that they can’t until it’s too late.

        • MoneyNing says:

          $20 million invested would be hard to lose, but I guess nothing is enough if you are just chipping away at it without the money ever growing.

          Assuming I don’t go crazy with buying “stuff” like fancy cars or mansions, I would actually find it hard to spend $1 million dollars on everyday life in a year. The other day, I was just telling my wife how I can’t seem to justify going to a fancy steak house regularly and pay $100 per person for a piece of steak, when $30 will do elsewhere.

          The quality is different, sure, but the USDA Prime beef isn’t 3x as good. I find it hard to think that lifestyle is even desired, whether I can afford it or not.

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