Most people dream of winning the lottery, but most people underestimate the impact of such a extraordinary event. Whether you are ready or not, cashing the winning ticket is almost certainly a life changing event.
A couple weeks ago, our family decided to try our hands on a lucky game called the lottery. It was fun. After all, the jackpot was over $100 million dollars. I don’t know about the others, but I had a few dreams of my own that I wanted to fulfill. Of course, we didn’t win, but while looking at the options of cashing out, I noticed that you could either cash out in full, or get multiple annual payments for the next 26 years.
Many of you probably talked about this amongst your friends before, so I’m curious to know. Would you take the cash, or would you take the 26 equal payments over many years?
Perhaps $100 million is too high of a number, because picking either option gives you too much money (and therefore, choosing almost doesn’t matter). What if the jackpot was a more modest $12 million?
I checked the Mega Millions website, and they showed an example with such a number. Either take $7,042,000 all at once, or take $461,538 a year for 26 straight years. Both sound good right now I’m sure, but what if you actually had the option to pick just one?
Would you take several hundred thousand dollars up front, or would you take a very high paying job for the rest of your working life (if you decide to still work that is)? Oh, and before you answer, note that taxes will need to be taken out of both numbers, so only roughly half will actually be yours.
How I See It
I remember this exact conversation amongst our family before. Without much thought, I said I would like the money up front. $7 million dollars. I’d be set for life, and buy pretty much everything I ever wanted. Having cash in my hands is also much more flexible, and money right away, even though a smaller amount, seemed like a no-brainer.
Fast forward to today though, and my answer is different. I would take 26 payments of over $400k in a heart beat, even though it’s probably not the more popular choice. The reason is simple. Choosing annual equal payments ensures that my family is set for life.
Can you imagine getting $7 million dollars all at once? We all have dreams, and a large sum of money is too tempting. I know that if I have $7 million dollars pushed to me, I will probably buy a very luxurious car, and might even change my house without regards to the fact that I just purchased a home (actually, I haven’t even moved in yet.).
I might still get the same car with $400,000 a year, but I know that as long as I don’t borrow any money, I can splurge and be irresponsible all I want and I will get another $400,000 in a year.
Selfishly, $7 million up front is better. I can use the money to invest, or really try to grow my business. There’s a good chance I can significantly grow this figure, but what if it doesn’t pan out the way I want it to? Life can throw curve balls at you at anytime without warning. For my family, the 26-payment option is the more selfless thing to do. $400,000 a year for over two decades pretty much guarantees an extremely comfortable life for them. It’s definitely not as flashy, but boring is pretty good. Nothing wrong with that.
How about you? Leave your comments, and come on over to the site to read what others think too.