Noel Farrelly: How to spend Lotto money
Sep 3 2010 By Noel Farrelly
Statistics show that if you buy a lottery ticket on a Wednesday you have more chance of being dead come Saturday than you have of winning the jackpot. However that doesn’t stop Britons spending £100 million each week on the lottery.
And a tiny percentage, of course, do win, which continues to be the attraction. Now and again stories pop up in the news of lottery winners declaring bankruptcy. A recent example of this was former bin man Michael Carroll who won £9.7 million only to lose it all.
One example of his poor financial prowess was the purchase of a house for £800,000, spending a further £500,000 on it, only for its market value to drop to a mere £140,000. As a result of his inability to manage his finances, Michael declared himself bankrupt eight years after his win and has since resumed his employment as a bin man.
This case is by no means unique. The history of get rich quick gambling wins is littered with similar cases both here and abroad.
One of the problems with acquiring a large fortune very quickly is that the winners have not had time to develop a lifestyle, nor cultivate a personality, that is conducive to keeping that fortune.
The average lottery jackpot winning ticket is worth around £2 million and properly invested over a 20 year period could grow to more than £8 million, assuming a net growth rate of seven per cent per annum.
No matter how you acquire your wealth, whether through inheritance, sale of a business, accumulated savings or, indeed, a big win, the most important thing is to develop a co-ordinated, coherent plan, preferably with the help of a qualified professional.
First steps are to make the big decisions - how much to give away to family and/or friends and legal advice will be important here. Then list the big expenditure items - a new house? Ferrari? Speedboat? Once you establish those costs you should estimate annual expenditure and your financial adviser, with the help of cash flow modelling software, will help you decide how much of your capital needs to be invested for the long-term, once you have decided how much you want to keep as a financial cushion on deposit.
Simplicity should be the watchword with your portfolio, utilising low-cost, passive strategies which suit your risk profile.
* Noel Farrelly is a director of Sutton Coldfield-based Index Wealth Management
