18-03-2012, 08:13 AM
The Straits Times
Mar 18, 2012
small change
What you should do if you hit the jackpot
Pay off debts, buy a house, set up a retirement fund - before splurging on luxuries
By Yasmine Yahya
Last month, a 26-year-old Australian engineer named Jessica Down won an enviable $1 million in cash in the Changi Airport 'Be a Changi Millionaire' draw.
She said she hoped to invest some of the windfall and spend the rest on a holiday, taking her family shopping, throwing a party and perhaps buying a house.
All of the above sound like perfectly sensible things to do after winning $1 million and I truly hope she sticks to her plan.
The track record of past lottery winners is not encouraging.
For starters, a remarkable number of these windfall winners have ended up broke soon after their stroke of good luck, as they burned through their whole cash pile by gambling and adopting lavish, hedonistic lifestyles.
There's New Jersey resident Evelyn Adams, who defied near-impossible odds to win the lottery twice in the 1980s, netting some US$5.4 million (S$7 million) in all.
She gambled it all away and was last reported to be living in a trailer park, flat broke.
Londoner Michael Carroll won a whopping £9.7 million (S$19 million) in 2002 and proceeded to spend almost all of it within 18 months on extravagant houses, flashy cars, gold jewellery, drugs and gambling.
He is now living off unemployment cheques, which give him about £42 per week.
Then there are those especially unfortunate lottery winners whose good luck attracted the jealousy and resentment of people close to them.
A few have even been murdered by those who sought to inherit or steal their wealth, while some have committed suicide from the stress of dealing with the onslaught of needy and demanding relatives and friends.
It is enough to make one swear off lucky draws, lotteries and jackpots altogether.
Even financial advisers agree that being an instant millionaire is not easy.
'The difficulty in making the most of a sudden windfall is the propensity to indulge in newly affordable luxuries,' said Mr Albert Lam, managing director of research and investment at IPP Financial Advisers.
'The financially savvy may identify 'sowing' the entire sum of money in the right manner as the most obvious option, but it's not always an easy decision to make and much less to stick with.'
I think many of us can agree that it is not enough to simply win a pot of cash. One also needs strategies on how to manage that wealth and make it work for you.
This is Mr Lam's practical guide to what one should do after winning the lottery:
First, pay off all your debts.
Second, get yourself a house and pay for it in full.
Third, start a retirement fund, or expand it if you already have one.
Only when you have settled the above should you start splurging on luxury goods, holidays or anything else your heart may desire.
'Home owners should pay off what's left of their mortgage, while those who do not yet own a home should invest in buying one within reasonable means,' he said.
While it may be a tempting notion to invest the cash instead and hold off on paying the loans until a later date in today's negative real interest rate environment, it is imperative to recognise that risks abound and there always exists a chance that such investments can backfire, he added.
'It is hence most prudent to first prioritise a fully paid-up home, which is undeniably the bedrock of financial security, thereafter exposing only a portion of the remainder to investment risks.'
After allocating for a home, it is advisable to also keep aside in savings a year's worth of expenditure to ride out any unforeseeable events or calamities, Mr Lam said. 'Of the remaining sum, we approximate that 10 per cent may be splurged on loved ones, a third on perhaps a well-deserved vacation or on a car, while the rest may be set aside with a credible financial adviser.'
This financial adviser should be one who is able to tailor-make a financial plan for you, taking your risk adversity and financial needs into consideration, Mr Lam noted.
Appropriate and adequate insurance coverage, a form of risk management, is an often-overlooked necessity, while a carefully devised investment plan helps grow your wealth to meet your eventual retirement needs.
One final note of advice: Hire a lawyer if your post-lottery plan includes divorcing your spouse.
Californian Denise Rossi won US$1.3 million in the state lottery in 1996 but did not tell her husband, and left him a few days after her win.
Five years later, Mr Rossi found out and took her to court for not disclosing those assets in their divorce papers.
She ended up having to turn over her entire pot of winnings to him.
A lawyer would have been able to advise her to disclose the money during the divorce. She would likely have been able to keep all, or at least half of the cash had she done so.
yasminey@sph.com.sg
Mar 18, 2012
small change
What you should do if you hit the jackpot
Pay off debts, buy a house, set up a retirement fund - before splurging on luxuries
By Yasmine Yahya
Last month, a 26-year-old Australian engineer named Jessica Down won an enviable $1 million in cash in the Changi Airport 'Be a Changi Millionaire' draw.
She said she hoped to invest some of the windfall and spend the rest on a holiday, taking her family shopping, throwing a party and perhaps buying a house.
All of the above sound like perfectly sensible things to do after winning $1 million and I truly hope she sticks to her plan.
The track record of past lottery winners is not encouraging.
For starters, a remarkable number of these windfall winners have ended up broke soon after their stroke of good luck, as they burned through their whole cash pile by gambling and adopting lavish, hedonistic lifestyles.
There's New Jersey resident Evelyn Adams, who defied near-impossible odds to win the lottery twice in the 1980s, netting some US$5.4 million (S$7 million) in all.
She gambled it all away and was last reported to be living in a trailer park, flat broke.
Londoner Michael Carroll won a whopping £9.7 million (S$19 million) in 2002 and proceeded to spend almost all of it within 18 months on extravagant houses, flashy cars, gold jewellery, drugs and gambling.
He is now living off unemployment cheques, which give him about £42 per week.
Then there are those especially unfortunate lottery winners whose good luck attracted the jealousy and resentment of people close to them.
A few have even been murdered by those who sought to inherit or steal their wealth, while some have committed suicide from the stress of dealing with the onslaught of needy and demanding relatives and friends.
It is enough to make one swear off lucky draws, lotteries and jackpots altogether.
Even financial advisers agree that being an instant millionaire is not easy.
'The difficulty in making the most of a sudden windfall is the propensity to indulge in newly affordable luxuries,' said Mr Albert Lam, managing director of research and investment at IPP Financial Advisers.
'The financially savvy may identify 'sowing' the entire sum of money in the right manner as the most obvious option, but it's not always an easy decision to make and much less to stick with.'
I think many of us can agree that it is not enough to simply win a pot of cash. One also needs strategies on how to manage that wealth and make it work for you.
This is Mr Lam's practical guide to what one should do after winning the lottery:
First, pay off all your debts.
Second, get yourself a house and pay for it in full.
Third, start a retirement fund, or expand it if you already have one.
Only when you have settled the above should you start splurging on luxury goods, holidays or anything else your heart may desire.
'Home owners should pay off what's left of their mortgage, while those who do not yet own a home should invest in buying one within reasonable means,' he said.
While it may be a tempting notion to invest the cash instead and hold off on paying the loans until a later date in today's negative real interest rate environment, it is imperative to recognise that risks abound and there always exists a chance that such investments can backfire, he added.
'It is hence most prudent to first prioritise a fully paid-up home, which is undeniably the bedrock of financial security, thereafter exposing only a portion of the remainder to investment risks.'
After allocating for a home, it is advisable to also keep aside in savings a year's worth of expenditure to ride out any unforeseeable events or calamities, Mr Lam said. 'Of the remaining sum, we approximate that 10 per cent may be splurged on loved ones, a third on perhaps a well-deserved vacation or on a car, while the rest may be set aside with a credible financial adviser.'
This financial adviser should be one who is able to tailor-make a financial plan for you, taking your risk adversity and financial needs into consideration, Mr Lam noted.
Appropriate and adequate insurance coverage, a form of risk management, is an often-overlooked necessity, while a carefully devised investment plan helps grow your wealth to meet your eventual retirement needs.
One final note of advice: Hire a lawyer if your post-lottery plan includes divorcing your spouse.
Californian Denise Rossi won US$1.3 million in the state lottery in 1996 but did not tell her husband, and left him a few days after her win.
Five years later, Mr Rossi found out and took her to court for not disclosing those assets in their divorce papers.
She ended up having to turn over her entire pot of winnings to him.
A lawyer would have been able to advise her to disclose the money during the divorce. She would likely have been able to keep all, or at least half of the cash had she done so.
yasminey@sph.com.sg
