How to Deal With Winning a Life Changing Jackpot
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There is no human being on earth who never closed his eyes and dreamt about winning the lottery and what he or she would do after winning. Whether you dream of winning millions at a lottery, a slot machine jackpot or a once in a lifetime run at the tables, such life changing amount is one of the most universal dream. If ever Lady Luck should embrace you however, would you be ready to react correctly? Having assisted many new millionaires after such a win throughout the years, here is our expert advice.
You have shouted, yelled, danced on the table and shared the news with everyone? Now take a deep breath and take the first responsible measures. If you have not done so yet, sign your ticket if it's a lottery win. Then take a picture of the ticket, make a few copies and store them away. You really don't want to go from the luckiest person to the most unfortunate in just a few days!
All jackpots are not equal
We often say "If I ever win a million". Nowadays however, what does a million dollars bring you? Winning one, ten or fifty million dollars is very different. Before going crazy, put your new fortune into perspective. For instance, a federal pension plan is estimated today to be worth between $2M and $2.5M. If you don't have any money and you win one million dollars, it would be a lot better to think about your future then go out and buy all the luxury you always craved for. Unfortunately, most people do not react this way.
Build a winning team
Not only will you make some people envious, but for sure a lot of people, qualified or not, will try to "help" you with their own version of what you should do. At this stage, it is more important than ever to put reason ahead of emotions. Contact someone you trust from your circle of family and friends, a person with lots of contacts. It could be your lawyer, your accountant, your portfolio manager. Your main goal here is to build a team of competent people and mainly with experts who have already dealt with such winners. In the best situation, your team will be in place before you receive your check. This way, you can enjoy the win, knowing your money is in good hands. Don't look at this as an expense, but rather as an investment cost! Making the right decisions at this time can make a huge difference on what you will have in your pockets, short, medium or long term. And between you and us, you can afford it now!
Medias, a mandatory pain
Any jackpot winner, by buying a ticket or playing a casino game, gives his consent to the organiser to use his or her image. If the idea of giving interviews appeals to you, good, but keep in mind this will attract a lot of new requests. It is amazing how many new friends you will have! Our suggestion is to play the game as you must, but within the limits you will fix. Accept only one media event and get it over with. You have more interesting things to do anyway!
Go on vacation
The worst you could do right now is to start spending away without any plan, just burning money as fast as your intuition allows you to. It is very difficult at this point to see clearly with all the different possibilities in front of you. Why not invest a few grand and go on vacation with your better half for a few weeks, in order to take a few deep breaths and look at your new situation in a more relaxed setting? We bet you will laugh yourself at your original plans when you come back from those vacations. This time is worth more than you think, don't put it aside.
Take care of people close to you, but all at once
It is never mandatory of course, but if you have won a large sum, chances are you will want to share part of it with family and friends. It is not our job, or anyone else's for that matter, to tell you what portion you want to share. Our advice however would be to use your vacations to decide who and how much. More importantly, give that money all at once. Be very clear about this to your entourage. This way, you will avoid having some people keep some noxious hope of receiving some money in the future. You will thus be free to move on without harming your relations.
Now, all of this advice is good but you should not forget to spoil yourself! Whatever crazy thought your mind keeps getting back to, you can now take care of it. However, if you still want to act responsibly, try not to spend more than 10% of your winnings on it in the short term. This should provide you with enough fun without modifying the usefulness of the amount won.
The 4% rule
We have already talked about this: all jackpots are not equal. Can you stop working? How can you manage your new wealth?
Here is where the 4% rule comes in. Historically, a well balanced and well managed investment should allow you to generate annual interests of 4%. Your main goal here is to live with these interests without touching too much your principal sum.
If you won 1M$, we are thus talking about 40 000$ yearly. Do you really want to stop working and get by with only this amount? Probably not.
With 10M$, your new salary would be 400 000$ per year, without lifting a finger. Already we can see that the decision is not the same. Now with 400 000$ you can live the life! And if you won 50M$ you could spend 2M$ per year!
Wait a little bit more
You have spent your first dollars on fun things and are enjoying your new life. However, now a rich person, you will probably want to proceed with some major moves, like buying a house worthy of your new fortune, or a seaside condo where you can escape once in a while.
This idea may be very good but wait 8-12 months before proceeding. Why? Simply because you have no tangible experience in your new life. Right now, all you have is your instinct on your tastes, but no concrete idea coming from your experience.
Take this example. Let's say you usually go down to Florida to visit your family during the Holidays. You have always dreamt of having your own pied-à-terre there. But will Florida still be your favorite destination once you have tasted your new routine? You might discover new destinations that suit you more. By waiting a little year before committing to this big decision, you greatly diminish your risk of error.
Obviously, with such a fortune, you will want to entrust your money into the most expert hands you can find. A private wealth firm will possibly be the best way for you. For many reasons. The most important is without a doubt the personalised approach that will allow you to build a plan specifically for you, often very different from one built for the average investor. Also, the Personal Manager always has a solid network of contacts that will help you. This way you get a precious intermediary able to assist you in all financial facets of your new life.
You like the idea but have no one to steer you in the right direction? We invite you to contact Rivemont, a Canadian firm that has assisted many new millionaires in the past.
You have won a record amount? Then, don't limit this personalised help to your finances! Why not get a private concierge? You will then receive a personal assistance for your every wish, allowing you to really enjoy your new life.
Should I pay my mortgage?
There's a question that comes back often. Now that I have the means, should I get rid of this old debt, or of my new one, or just keep on paying it?
There are some emotional reasons that might stir you in the direction of a debt free situation. If this is the case, go ahead and get that mental comfort. However, fiscally at least, while our interest rates are at such a low level, it is a lot more logical to not pay off the mortgage and use this money to invest in a personalised portfolio. You will easily find a mortgage rate under 2.5% right now. We have already said that a good investment will return 4% on average. The math is easy. You will have more money to invest and pay your mortgage with.
Don't become a cash cow
The central point of this article is to make sure you are well supported. However, there is a threshold not to cross. Now that you have the means, there are as many financial products as you could imagine. It does not mean they are all well suited for you. Never become a cash cow for someone who makes a living out of selling these tools. Do you really need a life insurance with that much money for instance? Probably not.
This whole article would be incomplete without a word about the importance to update your will. Never play the lottery with your estate!
What about taxes?
We are truly blessed in Canada! Indeed lottery of gambling wins are not taxable. Hence, the amount you win is exactly the amount you will receive.
However, we don't live in a vacuum. What happens if you a won a jackpot in the United States? You will then learn that non-American citizen have to pay a 30% tax upfront. This tax is collected by the American Treasury, not the Canadian government.
However, few people know this, but it is possible to recoup part or all of this tax. Experts firms offering a turnkey service exist in Canada, amongst them the bilingual firm Gamblingtaxes.ca. If you win a jackpot south of the border, this is your first stop in order to maximise the final amount of your win!