Here are the top reasons why lottery winners go broke!
6 - Family and Money…..
It's overwhelming to suddenly stumble upon an amount of money that's in most cases
more money than 99% of the population would otherwise make in a lifetime.
The smart thing to do is to consult with actual legal and financial experts who're experienced
in dealing with unexpected windfalls, such as inheritances, or in this case, lottery
winnings.
It's not just lottery winners that can't deal with a large windfall at one time.
Just think of how many professional athletes go broke.
Most people just don't know how to react to such a large amount of money that they
didn't really work for.
As it turns out, there're lawyers who specialize in the niche field of advising instant millionaires
on how not to blow their windfalls.
Yes, actual lawyers.
Or you can go with a fiduciary advisor.
Not your smarta*s nephew who once saw a documentary on lottery winners.
In fact, listening too much to the advice of friends and family is probably the second
best way to lose your money.
Large amounts of money is a complicated business.
If you've never dealt with it before, you need professional help.
Unless your brother-in-law's surname is Gates or Zuckerberg, he's likely to just
"advise" you to invest in one of his horribly laughable ideas for a business.
5 - Watch your back People get bled dry, sometimes quite literally.
We've already gone over Abraham Shakespeare before in one of my previous videos, but we're
gonna go over Mr. Shakespeare real quick gain.
Abraham won a thirty million dollar lottery jackpot in Florida, receiving a lump sum of
$17 million in 2006.
He moved out of his working-class neighborhood in Lakeland, Florida into a gated community.
Several months after his lottery win, apart from a million dollar home, his only other
major purchases included a Nissan Altima and a second-hand Rolex watch.
His actually relatively modest purchases wasn't what done him in.
It was the people that he kept around him.
Shortly after his lottery win, Abraham's family declared him missing, and in January
2010 his body was found buried under a concrete slab in the backyard of an acquaintance.
Dorice "Dee Dee" Moore was convicted of his murder and is now serving life in prison without
the possibility of parole.
Abraham, however, isn't the only winner who has been murdered over his millions.
Urooj Khan won $1 million in the Illinois lottery in 2012, and opted for the lump-sum
payout of $424,500 instead of annual payments.
He planned to use the money to expand his dry-cleaning business.
Sadly, Khan died less than a month after winning, the day after his check was mailed.
While his death was ruled natural at first, a test later revealed that he had been poisoned
with cyanide.
The police have not named a suspect, and a subsequent autopsy revealed nothing more.
When you get a bunch of money, really DJ Khaled said it best.
No new friends!
4 - Discounted Cash Flows?!
This is probably the most obvious example of how to lose it all real quick.
Blow it.
You'd be surprised at how quickly previously broke people can burn through millions of
dollars.
William "Bud" Post won $16.2 million in the Pennsylvania lottery in 1988, but soon had
$1 million in debt within a year.
A year!!!
How do you blow 17 mill in a year?!?!
On top of that, his ex-girlfriend successfully sued him for a share of his winnings and his
brother was arrested for hiring a hitman to kill him in the hopes that he'd inherit a
share of the winnings.
F?!?!?!****ck!!
After sinking money into various family businesses, Post sank into debt and spent time in jail
for firing a gun over the head of a bill collector.
Unfortunately Post now lives quietly on $450 a month and food stamps.
Another unfortunate example is Sharon Tirabassi, a single mother who had previously been on
welfare.
She was fortunate enough to cash a check from the Ontario Lottery and Gaming Corp. in 2004
for $10.5 million.
However, unfortunately for her, she spent her winnings on a "big house, fancy cars,
designer clothes, lavish parties, exotic trips, handouts to family, loans to friends," and
in less than ten years she was back riding the bus, working part-time, and living in
a rented house.
It's really just one giant math problem.
Once you figure it out, you just stick to the answers to the budget you have for each
year of your life.
Okay okay, not ALL people go crazy after they win.
Some people make pretty rational, measured decisions and continue to reap the benefits
of a massive financial boost for years into the future.
People such as Denise and Paul Hardware, who kept their cool, celebrated modestly with
a luxury cruise before making some good solid investments…mostly in property.
The life of this Wales-based couple took quite the turn in 2007 when they won £5 million.
But after returning from their cruise, they paid off their mortgage, bought their dream
home in Somerset, and then invested in three more properties.
The winnings also allowed them to fund their son's college degree.
While stories like that of the Hardware couple are encouraging to those of you who still
dream about winning the lottery and not ruining your lives are great, but of course, they
aren't nearly as entertaining.
So, in that spirit…here's one more.
Callie Rogers was just 16 when she won £1.9 million — about $3 million — in the UK's
lottery in 2003, and she was too young to know how to manage her money or where it would
lead her.
Rogers had two children and then blew the rest on partying, vacations, and gifts for
her friends.
Now Rogers works as a cleaning woman and is reportedly facing bankruptcy.
Just another classically tragic lotto story.
3 - Taxes Death and taxes, those two are pretty much
the only things that's guaranteed.
Winning a large sum of money immediately puts you in a whole new tax bracket.
Most people forget this and are in for a big surprise when a lot of the cash is spent and
the first tax bill arrives.
Let's use the example of the $1.5 billion Powerball.
In the US, there's no way you're taking home that entire amount, none.
Of course, the first hit comes even before taxes kick in.
That estimated $1.5 billion prize is only if the winner opts to take the winnings in
30 payments over 29 years.
Basically the gov't takes that money and invests it in bonds for you, tax free of course
until you get the actual payment.
If you want the money now in one lump sum, the jackpot is a mere $930 million, a cut
of 38 percent.
Next up is the federal tax bill.
Lottery winnings are taxed as ordinary income.
If you win the jackpot, you'll be subject to the current highest federal tax rate of
39.6 percent.
And there aren't many workarounds to substantially cut that bill.
A lottery winner isn't exactly the type of person the government is eager to give
a tax break to.
I mean, it makes sense, since they know typical lottery winners aren't exactly high cash
flow generating individuals, so they wanna take as much as they can now.
The U.S. government automatically withholds 25 percent of such large prizes if the winner
is a person with a Social Security number.
For someone choosing the lump sum, they'll be taking home that prize MINUS $232.5 million.
Residents who don't have a Social Security number, or fail to provide one, will have
28 percent withheld and foreigners, 30 percent.
Winners gotta pony up the remaining 14.6 percent in federal taxes come tax time.
That's a bill of roughly $135.8 million you don't want to forget about amid early splurges.
So after federal taxes, in the case of our 1.5 billion Powerball example, you'd be left
with about $561.7 million.
Which, is still a HELL of a lotta money.
Just think about it this way, even if you spent 2 mill a year for 100 years…..you'd
still have a ton of money left!!
Again, the problem is, people love blowing that new money.
Anyways, depending on where you live and where you bought the ticket, state and local income
taxes further reduce the winnings.
In New York City, for example, you pay federal, state, county and city taxes.
Tallied up, a state and local tax bill could shave as much as another 15 percent — $139.5
million — off the lump sum.
That reduces your net winnings of our example to $422.2 million.
Cooooommmme onnnnnnnnn!!!
The luckiest Powerball winner would be someone who's a resident of Alaska, Florida, Nevada,
South Dakota, Texas, Washington and Wyoming.
Those states participate in Powerball, but don't have a personal income tax.
California and Pennsylvania also exempt lottery winnings from state income tax if you bought
the ticket in state.
2 - New money vs Old money If you couldn't figure it out by now with
what I've been saying throughout this video, managing money is waaaay more difficult than
most people realize.
It's NOT the math associated with investing that's the tough part.
C'mon, let's be for real, any random person with access to the internet and an excel spreadsheet
can easily do discounted cash flows to figure out a budget to make their money last.
The math is the easy part.
The hard part is dealing with emotions.
Executing the financial plan is where most lottery winners go off the rails.
Think of it like people and food.
Everyone knows that to lose weight, just stop putting food in your mouth.
It's literally that easy.
But why are there so many outta shape people around?
Exactly, it's because they can't control themselves.
It's the same exact thing with money.
Take Jane Park for example.
The youngest person ever to win the lottery in Britain wants to sue the jackpot honchos
who made her wealthy because the dough quote "ruined her life," according to her.
Jane Park, 21 — who won $1.25 million playing Euromillions at age 17 — says she was too
young to cope with the sudden flood of wealth.
And this is only 1.25 million dollars.
In the grand scheme of things, this isn't exactly life changing money.
Before Park won the lottery in 2013, she worked as an administrative assistant for $10 an
hour and lived in a modest apartment with her mother in Edinburgh.
Listen to this, now she owns a flashy purple Range Rover along with two homes, and has
traveled the world with the lottery cash.
She's also used her lottery winnings to pay for plastic surgery, designer shoes and
extravagant nights clubbing.
Does this sound typical yet?
She says she's now sick of shopping, misses hustling for a paycheck, and has struggled
to find a boyfriend who isn't using her for her money.
Apparently the lavish lifestyle has only made her feel quote "empty" inside.
She said she has material things but apart from that, her life is empty.
She said she started to wonder what her purpose in life is.
So instead of turning to God, therapy, or whatever it is people need to do to get their
life back on track, listen to this bullsh*t, she's filing a lawsuit against UK's National
Lottery!
She's claiming that the lottery shouldn't allow kids under 18 to play.
Just wow.
Does anyone hold themselves accountable these days?!
Let's think through the logic on this one, she's blaming her problems on having money,
but she's suing for more money.
How the h*ll does THAT even make sense?!
Sounds like someone went broke to me!!!!
Anyways, people with that old money, or people who gradually became wealthy through building
a business, have a kind of, let's just call it "training" that overnight millionaires
just don't.
This explains a lot of the silly financial mistakes that many rookie millionaires make.
You see similar traits in overnight celebrities, or like we said before in professional athletes,
basically just anyone who isn't used to a lot of money.
If you're inexperienced with big money, you should really see an advisor who hopefully
can pull in the reins on the spending and bad investing.
As we've seen with some of these stories, a good professional advisor might have actually
save these people from themselves.
A good advisor would have probably been helpful to Jonathan Vargas.
His is a very interesting, although tragic case.
The 19-year old took home a $35.3 million Powerball jackpot in 2008.
Vargas used his new-found wealth to start a business.
But not just any business.
He started a pro wrestling business.
He called it "Wrestlicious".
And wrestlicious featured an all-female cast of wrestlers clad only in bikinis.
Yeah, that sounds like 19-year-old genius at work for sure.
Anyway, Wrestlicious lasted just one year on TV, but obviously isn't in business,
because let's be for real, have you actually heard of this?!
And according to reports, Jonathan Vargas is broke.
Please, do this for me, if you ever win the lottery and you've never built a business
before, PLEAAAASE talk to a professional!
1 - Annuity?
Many people take an annuity, which means you get your money in installments over a period
of 29 years.
Which is a good thing.
Well…that actually depends on how good you are with money.
The problem is, you gotta be straight up with yourself.
Are you actually good at money management?
Or no?
Just as an example, everybody thinks they're an above average driver.
See how THAT math doesn't work out?
As I mentioned earlier, taking the annuity is basically letting the government hold onto
most of your prize and invest it for you.
The best part is, the government doesn't pay tax on investment income.
Of course, once you get the annuity checks, you'll have to pay income tax on them.
But if you take the lump-sum cash prize, you'll pay tax twice: on the prize when you win it,
and on the income you get by investing it.
This adds up.
If you invested all your prize money in the same way Powerball does, which is essentially
by putting the money in government bonds, you'd end up with 20 percent more cash in
2045 if you took the annuity option rather than the cash option, thanks to the tax savings.
Now this is where if you're actually good at money management comes in.
You COULD shave that difference by picking a different investment strategy with better
tax management, but you'll never beat the effective tax rate of zero on the investment
income earned inside the Powerball annuity.
But let's be for real.
A lot of hedge fund managers can't even beat the S&P 500…..and they're professionals.
If you're actually really good with money management, have built businesses before,
and have handled more than a mill year in net cash flow …….well damn, congrats on
getting to God-mode in life!!
By all means say "suck it" to the annuity and take that lump sum big pimpin!
But if not, by taking the annuity and accepting the lower rate of return and protecting yourself
from yourself so you can't blow all your money at once, it's worth it giving up the
extra points to make sure you're not broke in 2 years.
Let's not forget the tax savings too!
The only real downside with the annuity, is that if you die before it's finished paying
out, you can leave the future payments to your heirs, but the I.R.S. will want to collect
estate tax right away on those payments' future value.
Basically, you just gotta try to live past that last payment!
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