What to do when you win the lotto

Our Finance Editor, Justine Davies, joined 612 ABC radio this week to discuss lotto wins – and how to avoid losing them! This is what they talked about… “Winning a lotto jackpot is rare – the odds in Australia are around 1 in 45 million. Not that it stops us buying a lotto ticket, of course. The chances of blowing a lotto jackpot if you do win, though, are considerably higher! The latest story of loss relates to a British father of two, Roger Griffiths, who won the equivalent of $2.6 million in the UK lottery in 2005 – and is now broke. Along the way his marriage broke down as well. He?s certainly not the first – in fact there are a few online photo galleries of lotto losers out there on the www. Some have lost a great deal more than Roger! It isn?t just lotto winners who need to be careful, either – it?s anyone who unexpectedly comes into a large sum of money. It could be an inheritance, a life insurance payout, their superannuation or the sale proceeds of a business, just to name a few scenarios.   Why do some people lose it?While every person will react differently to a lotto win, there are a few common factors that can increase the risk of losing it, including:

Not being used to having it

When it comes to money we have earned ourselves, that we have built up over time, we tend to be careful with it. We tend to really assess what we do with it. If we?re not used to having money, though, that caution can be missing and there?s a risk of making silly decisions.

Blowing too much on luxury!

It?s human nature – we have a win, we want to enjoy it. But we also need to leave some in reserve!! The problem with large houses and sportscars and boats and so on is that they have to be maintained. They have running costs! The maintenance, the rates, the upkeep … if that becomes unaffordable, the sale price can be a lot less than we paid!

Investing in things that are outside our expertise.

Maybe you?ve always dreamed of running an equestrian centre, or a chain of bakeries, or your own bookstore – or of getting into property development in a big way. That doesn?t mean that you have the expertise to do it! I think there can be a real risk, for people who win the lotto, of plunging into business ventures that they simply don?t know enough about. And without the knowledge to run the business properly, they risk losing money on a failed venture.

Being a target

If you suddenly have a big pile of money, there?ll be a long line of people who either want to borrow it or want to tell you how to invest it! Now of course you want to help out family, but beyond that I think you need to put it somewhere safe and let things cool down before you make any decisions.

How to avoid losing it?

Do the basics first. Pay off your mortgage, pay any other debts, put money aside for school fees and put some in your super fund.

Then – don?t do anything! Beyond helping family and treating yourself, don?t make any quick decisions with the rest of your money. Put it somewhere safe, in a term deposit, and leave it there for a while.

Don?t quit your day job! The average person in Australia is going to earn between $1 and $2.8 million dollars during their working life. That?s more that you?re likely to win on lotto! So sure – take some time off, scale back to part time, but don?t quit your day job altogether. You risk losing skills that you might need down the track!

Get yourself some financial education. When you do decide to invest you?ll want to get some good, independent advice. But you also need to make sure you have the ability to understand the advice and to evaluate the advice you?re being given! So get some basic financial education so that you can make confident choices down the track.

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