I was browsing questions on Quora and I came across this question. It’s a very common question that you will see appear from time to time. (Although I have never had the opportunity to ask it) The question is, “I won the lottery/inherited X amount of money, what should I do right now?”
I always knew what I would do if I was in this position. First I will pay off most of my student loan and any debts with high interest. Next I will take out a certain portion to spend on friends and family. Finally I would just invest the rest of my winnings. It sounds boring but it was always clear to me, suffer a little now for a better future later.
Winning the lottery is like the equivalent of getting your paycheck for your entire working life at one go. Possibly even more, depending on how much you win. This money should be enough for you to survive for generations without working another day in your life.
You will be able to pay for anything and everything you desire. But evidence shows that so many lottery winners end up in misery and they are worse off after winning the lottery. People can actually finish spending this huge sum of money even though they were getting by doing okay in life with a much smaller amount.
Is Winning The Lottery A Blessing Or A Curse?
I feel that winning the lottery is a just temporary relief for people who don’t know how to manage their finances. Many people buy new houses and new cars within a month from winning the lottery.
They give treats to their friends and family and splurge on gifts for them. As they spend and spend, suddenly one day they find that their winnings are all gone and they are back where they started or even poorer than before. Most of the time, they don’t even recall where or what they spend their money on.
I believe the biggest key to keeping your lottery winnings or a sudden inheritance, is knowing how to manage your expenses.
Manage Your Expenses
Money does a funny thing to people. Whenever you have more of it, your first thought is to start thinking of what you are going to spend that money on. For some people the moment they get a windfall or salary increment from work, the first thing they do is to upgrade their home or buy a new car.
What many people fail to realize is, this is not a one-off expense. A bigger house or car could also mean that there will be a higher tax or maintenance fee that you will have to pay monthly or yearly. This is something many people fail to account for and one of the reasons why they end up paying more and more for an initial simple purchase.
If you save $1000 on your current income and even after an increment in salary you are only still saving $1000, you put yourself in a dangerous cycle. Because this cycle only works if you can keep your current income or continue to increase your income. The moment your income drops, you will have to sell possessions and make drastic cuts in order to get by.
If you are earning more but you are also spending more, the amount you save does not increase. Your savings still increase at the same amount but your expenses are rising.
For any lottery winners out there, if you want to keep your winnings you definitely got to cut down on your expenses. It is so much easier to reduce your expenses compared to increasing your income.
Before every purchase you just need to ask yourself 2 questions:
- Do you really need this item?
- Is there a cheaper alternative?
Answer both questions honestly and more often than not, you will find that you don’t need the item or there are cheaper alternatives available. Learn to say no to reckless spending so you will have more money to spend on what you truly need.
Learn To Catch Your Own Fish
Give a man a fish and you will feed him for a day; teach a man to fish and you will feed him for a lifetime.
I don’t want to win the lottery as I believe the satisfaction from “catching your own fish” is definitely going to feel more rewarding compared to just getting a “large bucket of fish”. As long as you keep investing and increasing your income, you will definitely own a “large bucket of fish” one day.
By learning how to invest, you will be able to grow your pile of fish. And you don’t have to worry about what the tide brings in as you are skilled in fishing. Once you’ve learnt this skill, it is yours to keep.
Personally I am still learning how to improve my fishing skill and even though this is not taught in schools, I believe it to be a vital and important skill. Here’s hoping all of us catch a bigger pile of fish in 2018!
(If you are keen to learn how to invest in stocks AKA improve your “fishing skills”, I have a course that you might want to check out!)
As always a BIG THANK YOU to all my readers! Please don’t hesitate to share this article if you like it. Let me know in the comments below, did you ever receive a windfall? Or know someone who did? What did you or they do with the windfall? What would you do if you received a windfall today?
I’ve been a bit busy with school and all the other stuff I have going on the side, so my writing have not been very consistent. Thank you for being patient with me and I hope you enjoyed this article!