If you ever win the lottery…

Think like a winner

Who hasn’t thought about winning the lottery? For some, it would mean life without the need to work. For others, it would mean a solution to problems, like health problems and debt. Others would use it to realise their dreams to travel or start a business.

Everyone’s dream is different, but the advice related to lottery is always the same. Even asking a hypothetical question about winning the lottery gets people cut-and-paste answers.

Answers like: 1. Put the biggest part of the winnings into a savings account. 2. Use some of the money for fun 3. Don’t forget about taxes.

Lottery winnings are no joke. In many cases, the winnings are more than the winner could expect to earn in their life. The advice for dealing with lottery winnings always seems to be rational and take a conservative investing strategy.

It’s only practical to use the same advice for investing and saving your daily income. Why not think like a winner? Most people don’t have the time and energy to think about the stocks market, financial derivatives and potential investment opportunities. Thinking like a lottery winner may actually make you one. Read on to know how.

Putting the biggest part into savings

90% savings, 10% fun.

Does it sound exciting when you want to go on that expensive trip next month? Or when you want to buy that limited edition T-shirt? But it will be immensely rewarding when the next economic crash hits. Or when you are 65 and you don’t have to worry about getting money for a comfortable retirement.

After you use financial life hacks and take advantage of online bonuses, paid your bills and necessary expenses, you should arrive at a sum of money that will be used for building a financially secure future.

Let’s say that sum is 200 euros. That means that a person using the “lottery winnings” strategy should put 90% of that sum into savings, and use the left over 10% for the unnecessary spending.  It would equal to putting 180 euros into a savings account, and having 20 euros left over.

Putting 180 euros every month into a savings account would net the owner 2,160 euros of savings per year. And that’s not a small sum. Factoring in interest rates on savings accounts, the person following this strategy would be ready to take on major financial disasters in just 7 years.

7 years may seem like a long time. But for a strategy that requires only putting money into a savings account and doing nothing more, it is a rather short period.

This 90% rule will come in handy when the person following it reaches the peak of his or hers career. Because people are creatures of habit, the average person will most likely have enough self-control to not discard this rule when they are earning their highest income. A 500 euro savings every month would reduce the time needed for weathering major financial disasters to just 2 and a half years. From 7 years to less than half of that!

For the more financially savvy investor, I would suggest diversifying their savings portfolio. Using 2 savings accounts may be more time-consuming than just having one. But it would be a safety guarantee if something happens to one of the savings accounts. Plus, if one of the accounts starts offering higher rates than the other, the investor could transfer their money more easily.

The advice to save the majority of winnings for lottery winners is a sound one. After all, as statistics say, most lottery winners lose all, or the majority of their winnings. We can speculate that the same thing happens when people receive their salary. Who wants to save money for the future when the instant psychological gratification of buying things is so nice? This is a common pitfall. However, it can be avoided through disciplined saving and following the 90% rule.

Use some of the money for fun

Why exactly 10% of the left over money should be spent on fun? Why not 20% or just 5%? I believe that living life without enjoying the simple pleasures of it, is wasting your own time in it. When a person gets old, they don’t have so much energy to go out or do novel and exciting things. That’s why every person should have money for that extra tasty doughnut or the better seats in an opera.

20% is too large of a sum to be used only for fun. 5% for some people would be just 7.5 euros left over for free spending per month. Both of these sums are the extreme ends of the spectrum. 10% dedicated to spending without worries is the perfect medium.

Don’t forget about taxes

Taxes are as certain as death. I would say taxes are even more certain since we will be uploading our minds into computers in 100 years. And taxes will still be in place in some way or another in 100 years.

Sure, with enough work on moving your wealth into the offshore and a smart tax accountant, a taxpayer could avoid paying taxes. But these actions require a large sum to take advantage of tax loopholes and not having a sense of shame. Also, avoiding taxes is punishable by law in most countries. Don’t forget about that.

The lottery winner saving strategy avoids the need to pay for a capital gains tax. If you invest in stocks or financial derivatives, you most likely will be cashing out the profits and transferring them to a savings account within a year. That would mean you would have to pay a capital gains tax.

By putting your 90% of left over money into a savings account and not touching it for many years would protect you from having to pay the capital gains tax year after year. You’ll just pay it when you cash out your account during retirement or during a major financial disaster.

Ready for it?

The beginning of this article mentioned how this conservative strategy can make you feel like a lottery winner. You will feel like a lottery winner when you retire and you see thousands of euros in your savings account. You will feel like a lottery winner when you have major health problems but you can afford treatment in an expensive hospital or in another country.

Not having the opportunity to use left over money for free spending sounds sad. Especially if a person follows this strategy for decades. But a person will be even more sad and desperate then they reach the sunset of their life and have to depend on their children and state handouts. Or even worse, to beg other people for money just to survive. No one wants that, so I urge my readers to start saving their money now.

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Categories: Daily savings, Investing, Lifestyle

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