What influences your behavior? Your innermost feelings, your fears, the place where you grew up, you parents, siblings, job, friends, current location – these are among the many factors that all have some impact on the way you, and all of us, behave. There’s no better example of how your personal life circumstances inform your actions than when you suddenly become very, very rich.
This life-changing event often happens thanks to the lottery, and what people do with the money when they win is just as varied as the many people who end up winners. Though it’s hard to characterize every type of person who wins and then quantify how they act given their newfound status, there are generally a few types of people that are easily grouped.
The Big Spender
This type of lottery winner is rarely overwhelmed with the amount of cash they’ve just been rewarded with, no matter how much it is. They’re “creative” spenders and simply see a number like $500 million and take it as a challenge: How do I spend this much money as fast as I possibly can?
Though it may be a bit more subconscious than that, it’s true that the world is littered with past lottery winners who act like this. It’s easy to buy a mansion and a fast car and be surprised at the fact that you’ve only spent a tiny percentage of your win. Most would stop there, but the Big Spender, however, seeks different ways to blow through their cash, focusing mainly on image and appearance.
Multiple lavis houses, fantasy vacations, bottle service every night at the club, closets full of designer clothes, wads of cash given away to family, friend and strangers alike, and warehouses full of Ferraris, are all just the tip of the iceberg. The Big Spender is usually not investment-savvy, meaning that he or she can’t cover their expenses with any monetary returns from successful ventures, and the money dries up as fast as it’s spent. This sometimes takes only a few years, and soon, these big spenders find themselves selling assets in order to maintain their lifestyle. Soon after that, they’re usually broke.
The Smart Saver
Instead of thinking about what they can buy with their millions, Smart Savers are more interested in making the money last for longest time possible. This approach could have many reasons, but the primary one is usually their desire to secure the interest of their family.
We often see elderly winners take this approach. Fast cars and mansions aren’t really a big deal to someone with only a fraction of their life left ahead of them, and so they set up trusts, foundations and accounts to keep the money safe in the bank.
Mark Cuban, a famous billionaire from the United States known for his ideas on money and technology, endorses the Smart Saver approach. He has said that the best thing to do with your jackpot is to simply stick it in your bank account for safekeeping.
This is a smart thing to do no matter how old you are. While it is, indeed, just fine to spend some of your winnings, keeping your millions for a rainy day (or for the next generation) is the best strategy to improve as many lives as possible.
The Intelligent Investor
Winning a billion dollars is just step one for the Intelligent Investors. They see a pile of money and think primarily about how they can get it to grow even bigger. The purpose of such a strategy may be to live off the interest without cutting into their jackpot, to set up a flexible financial strategy, or simply to acquire as much as possible for the fun of it.
While they do technically set out to spend as much of their money as they want, it’s not on fast cars and lavish estates. Instead. It’s on investment instruments like stocks, bonds, mutual funds, ETFs, commodities and currency.
The differences between the Intelligent Investor and the Smart Saver are few, but among them is two points of contention: 1. Cash is a depreciating asset due to inflation. 2. More risk is associated with investing versus cash. A market crash, for instance, would quickly make a billionaire investor poorer than your local supermarket cashier.
The Philanthropist seeks to give away his or her money to charity when they win the lottery. No matter where the belief comes from, there are sometimes (but not often) lottery winners who will give much of their jackpot funds to education, healthcare, animal or human rights causes or political causes that they believe do good in the world.
They care less about themselves and more about others, and while this is a commendable approach, there are some issues with this mindset. Often, huge sums of money are given to charity during good, prosperous years, but when times get dire, money is often a solution that is sorely missed.
Another issue with this strategy is that many charities aren’t as transparent as they should be. Smart Philanthropists use their money to set up new charities that they direct and manage, ensuring that the money goes where it’s most needed.
The Best Kind of Winner
To be fair, there is no better or worse way to use your lottery win. The truth is that each of these approaches is flawed in their own way, and that the best method to putting your new millions to use is to combine all the profiles listed here into a single package.
Spend on the car and house of your dreams, budget and save enough to take a great vacation every year, set up a trust for your children to profit from responsibly when they’re old enough, put a solid 30% into investment assets, and give generously to charity. It’s all possible, and easy enough with a little patience, and when advise from a financial planner, is considered.