Wouldn’t it be great if you had a rich uncle or relative who decided to bless you with a huge lump sum of money? What if you hit the lottery or received a settlement from a lawsuit? There are numerous instances where these very things have happened to folks and overnight they went from pauper to prince. What would you do if that happened to you?
Statistically, many people who win the lottery or otherwise come into large sums of money find themselves in bankruptcy in only a short amount of time. Why is that? Well, if they have not acquired skills prior to this windfall, often they’ll make poor choices. Sometimes people just don't compute the numbers.
Where Does It All Go?
Oftentimes people who come into big money decide to open a business, which is good, but they do it emotionally not rationally. If a person is not business savvy, they don’t know what it takes to run a business… $100,000-$300,000 could disappear very quickly. You have to really understand the true cost of things.
There is almost a certainty of bankruptcy in the forecast for people who decide to use their winnings to start a new business. This is true because having money does not make you an expert at handling it, nor does it give you specific knowledge that you would need to go into business for yourself. Yet, I am a staunch advocate of business ownership for many reasons… taxes being one of them—especially because they don’t have much of the inherent risk of small and big business.
Going into business is only one of the many ways to lose it all. Probably the best advice is for people to get a lawyer and a financial advisor. That may be the best way to avoid making mistakes that could lead to bankruptcy.
What Would I Do?
On the positive side, winning the lottery or receiving a huge cash settlement gives many people a chance to live out their fantasies. It allows them to take care of their families, give to charity, buy a new home, , etc.
I know that if I received $1,000,000 (that’s a lot of zeros) I would spend 15% on charity; there are many groups that can benefit from $150k. I would take 10% to help pay off my mother’s mortgage and another 5% to help other family members. 20% would be invested into a account so that by the time I retire, hopefully that $200k has grown into an extra $500-600K.
I do have a business plan, so I’d spend 15% to get my new business off the ground; if it failed I’d still be okay. Finally, with the remaining 35% I’d pay off any outstanding debts and loans I have (very little) and just enjoy what’s left over from there.
What would you do?