Most of have daydreamed about what we would do if we won Lotto. For someone that dream might become a reality because there’s a $34 million Power Ball draw on Wednesday night.
Jesse Mulligan speaks to the author of Sudden Money and how to Handle it, Nick Crawford, who's also a financial adviser at an Auckland-based wealth management firm.
Photo: Lotto
Over the past 10 years, Crawford has advised dozens of lotto winners, both here and in the UK.
The first mistake people can make is to rush into making decisions, he told Jesse Mulligan.
“The first thing to do is take your time, put it in an interest-bearing account maybe split it across two or three different banks and then before you decide to quit your job, or move house or buy a business or whatever it might be just wait until you get used to that new situation.”
His book is not just for lottery winners but anyone, whether though an inheritance or a divorce settlement, comes into a sum of money they’re not used to handling, he says.
Taking advice early on is important, he says, as it is not uncommon for people to burn through the cash very quickly.
“I think there’s a fairly high percentage of people who within two years are back to square one.”
And that is easier to do than you might think, he says.
“It sounds difficult doesn’t it? If you won $10 million dollars how could you possibly lose it?
“One that you see quite regularly is people just don’t have a plan and they give money away to families and friends and charities and buy property and maybe buy a business and buy a boat and suddenly the money they thought would never run out, and has got to sustain them for the rest of their life, can actually not be enough.
“You make a few mistakes with either a property purchase or a bad business decision then losing money is easier than making money.”
He also advises people think carefully before quitting their job.
“I was seeing these situations regularly where there were people feeling anxious about what the next step should be, or whether to tell people or how different family dynamics worked or whether to quit their jobs.
“The answer to that lies in the type of person you really are.”
Jobs give us a sense of place and suddenly quitting can be difficult to adjust to, he says.
“We’re all quite tribal people whether it’s our family tribe or our work network and if you get taken out of that situation then that can cause some loneliness.”
An example in his book is of a younger man who came into money
“A guy inherited some money quite young, his job was a corporate job, his boss was difficult to work for so he quit the job.
After about six months he was realising that if you’re not at work you don’t go to the Friday drinks, you don’t go to the morning teas, you don’t get invited to the Christmas party and he felt quite isolated.
“All his contemporaries were going to work Monday to Friday. So, he went back to work even though he had quite a bit of money because he felt the social aspect and the gratification of doing a job and doing it well was important to him.”
Other people might be at a different stage of life or have other plans they’d always wanted to pursue, he says.
“It might be the right thing if they’re coming up to retirement or they’re the entrepreneur type or they want to travel.
“But quitting your job as a matter of course when you win the lottery would be a mistake until you’ve really thought about your own personality.”
Not that you shouldn’t enjoy the windfall, he says.
“If you win a lot of money it would be mad not to enjoy it – go on a long holiday and start to plan out where you see your next steps in your life going.”
For someone who has seen many people suddenly rich out of the blue, he says money doesn’t make you happy.
“That old saying money doesn’t bring you happiness is true, that’s where I think some people who win the lottery and they get over that initial euphoria and what’s different is a number in a bank account. That’s all that’s really changed.”
Money gives you options to access the tings that do bring happiness, Crawford says.
“The money itself does not bring you happiness. And actually, if you do it wrong it can bring a bit of misery with it too.”
He suggests people are cautious about who they tell initially.
“The immediate thought, and I think I’d put myself in this category too, is not to tell people. And I’d certainly recommend to everyone for that first three to six months tell as few people as possible before you get used to the new situation.
“The worry is if you tell people, instead of being seen as that person you’re now seen as this big mountain of money.”
Keeping your new situation hidden forever is not however an option.
“The alternative to that is if you are not telling people how you’ve come in to money, then you’re carrying a secret with you.”
In the UK he had a client who won 30 million pounds.
“She was absolutely convinced that if her children found out then they’d turn into self-entitled little brats and their lives would be ruined.
"So, she didn’t want anyone to know. However, she found keeping it a secret a real burden to bear.”
Eventually people move on, he says.
“Today’s news is tomorrow’s fish and chip wrappers. So, you might be in the centre of attention for a week or two weeks and then everyone goes back to their own business and it can be forgotten about.”
To protect yourself from requests for help from friends he recommends setting a limit on what you are comfortable with.
“We say you name an amount where you’re comfortable giving money away $500 or $1000 and requests for money below that amount then feel free to give them away.
“With larger sums you can say, look my money’s invested and I need to speak to my advisers because I can’t just access money like that.
“You put a little barrier between you and the money and people who are trying to take advantage of you will think oh well there’s an advisor in there it’s not quite as easy as asking and getting - there’s a few more steps.”
And if you are in the lucky situation of suddenly having wealth to invest there is no magic place to stash the cash, he says.
“The best thing with a large sum of money is to diversify, so don’t put too much money in any one thing but have a lot of money spread across a wide area.
“We recommend people have cash, property, bonds and shares in a nice diversified mix.”
The proceeds of Sudden Money and how to Handle it is going to mental health charities.
