Here's what you should do if you win big on Lotto tonight

Wednesday, 9 October 2019

Day dreaming about what you might spend a major Lotto win on is something of a national pastime.

Many people fantasise about striking it lucky, chucking in their day jobs and buying dream houses, cars, and embarking on endless tropical holidays.

But the experts are warning that, should you find yourself significantly richer, caution may be required.

Lotto's Powerball has jackpotted to $34 million.

**READ MORE:

* Here's what makes us feel wealthy now

* Lotto New Zealand's $35m jackpot: How can you win it?

* Lotto: Our $20 billion dollar addiction**

FIRST THINGS FIRST

Financial adviser Liz Koh recommends anyone who is suddenly landed with a large sum of money should 'sit on it for a while'.

'Being in that situation, you have to sort of re-evaluate your life and think about what's important to you,' she said. 'Think, 'how do I want to make this money last for me so I can enjoy my life?''

If you are suddenly a lot richer, you'll need to resist the temptation to run out and spend your cash.

Another adviser, Simon Hassan, said very few Lotto winners had any money left after a couple of years.

'This is partly because they are not accustomed to having that much cash and inclined to start spending without thinking about what really matters to them.'

He said people should keep quiet about their good fortune as long as they could.

Putting the money in a six-month term deposit would be a good way to buy some time - 'to give your emotions time to settle down and for some serious thinking and planning.'

GET SOME ADVICE

Get some financial advice to help you prioritise your goals. Work out what is important to you and what money you will need to achieve that.

Meet a few financial advisers and sign up with one you feel comfortable with. Draw up a lifetime financial plan and enlist your adviser's help to stick to it.

Murray Harris, head of KiwiSaver at Milford Asset Management, said it was important to talk to professionals, 'not family and the new friends you'll suddenly have'.

You should also get some advice on the tax liabilities and responsibilities you'll have with such a large sum of money to invest.

GET RID OF DEBT

If you have any personal debt outstanding, get rid of that first.

Paying off credit cards, mortgages, personal loans and hire-purchase agreements should be a priority.

That means that, at the very least, should everything go wrong and you blow your win, or your investments turn sour, you are still in a much stronger financial position than you were beforehand.

MAKE IT LAST

Financial adviser Robert Oddy said leaving money in the bank was a fine way to deal with it - 'if you are quite happy to see it disappear'.

If you win the full jackpot, you can create a nice income just through term deposits. 

But if you end up with a slice of the millions, or you want to grow your win to cater for future generations, you will need to find investment opportunities that work a bit harder for you. Winners are advised to invest at least half of their windfall.

Harris said winners should develop a diversified portfolio of investments, including long-term and short-term assets.  That might include term deposits, bonds, and growth shares.

A professional adviser can help structure this so there is a mix of income from the investment, access to money when you need it and the opportunity for capital gains to grow your wealth.

The growth aspect is important because you need to at least keep pace with inflation.

Hannah McQueen, of EnableMe, has recommended buying a commercial property and a house, if the winners did not already have one.

She said: 'I have had two first division Lotto winners as clients. When the money is easily won, it is easily spent.  So while the windfall is a huge head start, it is still only a head start.  By that I mean that it needs to be built on, otherwise you don't achieve your potential, or more importantly your kids and your grandkids don't enjoy the legacy of your win.' 

It sounds mad, but you will probably need a rough budget. When you have a lot of money all of a sudden, it's easy to feel very wealthy and start throwing it around.

You need to have an idea of how much it's acceptable to spend or give away per month or per year, and still remain on track to your goals.

BUY A BUSINESS - IF IT IS THE RIGHT ONE

It's tempting to buy a business you have always had your eye on if you suddenly have the money to do so but it's important that you do so wisely.

Make sure you understand the business you are buying and the industry in which it operates - don't just blindly back a friend's venture.  

'If you won $30 million that would fund a pretty good hobby business and you wouldn't have to worry too much about its profits,' Harris said. 'But if you win a couple of million and put $1 million into a business and it didn't work out you could pretty soon find you had used up all your windfall and had no return.'

GIVE SOME AWAY

McQueen suggested 10 per cent was a good amount to give to charity.

But Oddy said it was better to set up a fund intended for charities and give them investment returns from that, rather than giving away chunks of the initial win.

PROTECT IT

Get some legal advice to help you protect your money for future generations.

This might mean a family trust structure or other form of estate planning to ensure that it stays with the right people.

This story was originally published in 2016 but has been updated because of tonight's $34 million jackpot.