I’m writing this article from a beautiful tropical beach after an amazing seafood dinner. We’re living debt free. After checking email earlier today, I know that the few startup companies I funded are all ahead of schedule, and have provided amazing jobs to some of the people I respect the most.
Sadly, all that is just part of my lottery fantasy world that will never come to be.
As Powerball reaches a record $1.X Billion this week, many people are buying tickets is record numbers. For one or a few lucky (?) people, their lives will change forever. The Winning Responsibly section is a few tips should you happen to win or think you might. For the rest of us, you can skip the next session where I share how the Lottery and be one of the most affordable live/work dashboards.
Winning Responsibly
First, winning a big payout will change your life forever, and for almost all winners not in a good way. Watch “Curse of the Lottery” for many examples of how winners ended up worse after winning than before. The lottery magnifies everything good and bad in your life. If you are going to play, consider a few safeguards in advance.
- Do not claim your ticket immediately. Wait until media attention dies down and you have time to get organized.
- Find a good tax and trust attorney. Setup one or more trusts to claim the prize under and distribute funds. This helps protect your identity from fraud, theft and violence, as well as helping retain as much of the winnings as possible.
- Set a budget ahead of time. Pick a small amount or percentage as “fun money” to spend on your dream items.
- Work with a financial planner and tax attorney to set up the trust where you can live to your desired standard off the interest income from your principle winnings. You want to draw against your principle as slowly as possible.
- Avoid debt! You just won more money than you need. There is no reason to live above your means, and this is the primary way wealth is destroyed.
- If sharing the winnings with family or friends, consider their financial stability and responsibility before giving them money. If you have any doubt, setup a trust to give them monthly distributions. A rapid influx of money can lead to debt, bad spending habits, and even drug use.
- Stick to what you know. This is not the time to by a restaurant or business you know little about.
The Lottery Index
The lottery can be a very useful and inexpensive dashboard to help identify underlying problems. When you buy a lottery ticket, you do so because you are looking for a change in your life. You want something new, something more, or maybe just things faster. Spending $1 on a ticket is enough to set up the condition to learn where your gaps are.
My first tip is the Lottery Index. I only buy a $1 game with a payout of $5 million to $150 million. This is an amount which I’ve determined will allow us to never have to work again, which is the basis for my dashboard: the freedom to do whatever. It also gives me the right conditions to fantasize about winning and what it would mean.
I noticed over the last couple years that the number of unchecked tickets in my wallet had a direct correlation to my 1. job satisfaction and 2. general happiness. Once I checked the ticket to know I didn’t win (which we all know is what will happen), the fantasy and daydreams were gone. This meant that I was holding on to false hope because I wasn’t willing to make the changes in my life to be happy now.
Now, every time I want to buy a ticket or find myself buying one, I start looking for the factors I’m trying to escape from. What could I do to change those stress points that didn’t require me to walk away from my job or situation? What am I dreaming about doing differently, and is it something I could do now?
Frequently I find that my lottery index is mainly correlated to how far I’m drifting from my 1, 5, and 10 year plans. The lottery tickets are giving me an external indicator of internal restlessness.
Prioritizing Your Life Through the Lottery Fantasy
I’ll be honest; my wife thinks I’m an utter fool wasting money any time I play the lottery. She’s not wrong, but also misses the value. For $1, I can release my daydreams about life after winning. That a better ROI than a movie ticket.
At first my daydreams were of all the cool things we’d do if we were able. I’d think about trips, home improvements, or if I’d keep working (part-time of course; let’s not be ridiculous). What I noticed was that as I adjusted the winning amount, my fantasy had to adjust accordingly.
Here’s a couple guides to get you started.
- Frist, accept the fact that you will not win.
- Assume you will net 30% of the jackpot if you take the cash payout. (Lump sum option at 54% of total, and then 60% after federal and state taxes.)
- Alternate between the lump sum and annuity fantasies. It will help tell you if you are looking for stability (controlled amount each year) or flexibility (cash now you can invest or spend).
- Base a living income on a 5% return on investments. This means for every $1 million invested, I will have $50,000/year income to spend without affecting my principal. To have a yearly income of $150,000 (netting about $130,000 after taxes), you need to have at least $3 million saved in the trust.
- Plan on living with zero debt and any future purchases paid in cash. This significantly lowers how much income you’d have to net each year to maintain your desired standard of living.
Here’s How It Works
Start with a round number like winning $100 million. It’s a fantasy, right?! That means you’ll have about $30 million after the lump sum and taxes (sadness). Take $1 million to put into your fun fund: pay off all debts, travel, buy vacation properties, lifestyle upgrades, etc. Now figure out how much you’d want to spend each year. Assume you want to live on $150,000. That means $3 million goes into a trust for income only. You now have $26 million for anything else or to generate $1.3 million in interest income each year.
Now that you have numbers to play with, start imagining what you’d do. What would you spend on stuff? How much on travel? Do you want to give to charity? Invest? Start a company? Who would you share with?
As you are daydreaming, now adjust the amounts lower and repeat your fantasy. After a while, you’ll start noticing a pattern to your thoughts.
- Immediate: The plans you keep starting with are the things that are most urgent, missing now, or would give you immediate security.
- Long Term: Your next level of planning/spending tells you more about what kind of long-term life you want. These are the ideas that come in your second level of daydreams.
- Extended: When you plans extend your winnings to family, friends or causes, you are now prioritizing their place in your life.
The lower you imagine winning, the more the exercise forces you to prioritize your short-term, long-term and extended goals. The more iterations of your fantasy, the more you’ll be able to identify what is important to you. You can extend the fantasy to a larger jackpot to help identify the larger patterns in your dashboard.
Conclusion
If you win the lottery, my sincere best wishes. I hope you are one of the few people who are able to use it to enrich your life. If you do play, watch how often you play and how long it takes to check your tickets. These could be indicators of life stress that you need to address. If you want really cheap entertainment, try the lottery fantasy game. The more iterations you run through, the more you are able to develop mental dashboards to help prioritize what is important to you. Good luck!
