Sunday, October 17, 2010

Winning Lotto

I've been thinking a lot about Lotto recently.

I was wondering to myself, why do people play Lotto?

Is it for the possibility of winning a lot of money? If that's the case, the possibility is so slim as to be completely pointless. That's no real reason at all. It certainly doesn't justify spending that much money on such slim odds.

The only conclusion that makes any sense to me is that the reason people Lotto is to dream about what they would do if they won. But dreams are free right? The dream is a bit different if there's actually a possibility of that dream happening.

So with the most recent building of that lotto prize I've been buying Lotto tickets, and in a bid of getting my money's worth have been talking about "when I've won". The funny bit is that while dreaming about what I would do with the winning's, I started to think really seriously about it.

So there are two things that come to mind.
  • How would I want that money to change my life?
  • Who would I want to help?
Talking to friends about it, they came up with a couple of ideas. From the rather outlandish and risky "Buy X model of car cause it goes up in value" - ignoring the fact that cars are liabilities and the chances of making money on them is minimal at best. A bit like teenagers convinced they're going to become race car drivers ignoring the fact that only the top few actually make it - to the slightly more sensible "get into property investment".

But then, if you had multiple of millions, would you really want your life be about chasing more money? Buying houses, doing them up, selling them off. That's a hell of a lot of work.

On the other hand, as part of that same question, do you want the winnings to change your life or just a few weeks/months/years? So you've got the same problem - your outgoings have to match your incomings.

The rich get richer. This is true. With more money, you have more leverage. Assuming that you don't want the rest of your life be about accumulating more money then with more money, you could put the majority of the money away into a term deposit. Shop around for the right interest rate (you've got a fair amount of leverage) and then you don't have to worry about it until that term matures.

Assuming a rather conservative 5% / annum of interest, then you're looking at $50,000 / year / $1,000,000. In otherwords, when Lotto Powerball reached $20,000,000, then you were looking at $1,000,000 / year - and that's at a horribly conservative 5%.

So the next question. Who do you want to help? Applying the same mentality above, is it better to give them a large chuck of the money or to give them a yearly amount? What if you could give them incentives?

For example, I have a few friends who would like to go back to some tertiary education but can't for various reasons - kids, family, lack of money etc. If I were to give them ... $50,000 a year plus an incentive of $50,000 if they were to go off and do the study that they've wanted to do then they'd have more than enough to support their family plus they'd be changing their lives.

What if, once a year, you were able to have a party? Invite all of those you're helping and have a party while you're handing out the cheques. Sensible amounts which don't actually need to take anything from your winnings - rather it could be a result of the money earnt in interest. There we go - a sustainable way of helping out the people who mean something in your life.

The news tonight is reporting that no one has claimed the prize. The fact that, it is a Sunday and about the best you could do is scan the ticket at the local dairy seems to have escaped the media. Personally I don't think I would go and collect the prize. Instead I'd be looking for ways of reducing my tax exposure. That would require an Accountant. That'd have to wait for a Monday at least.

And while I've got a day, I might as well see a lawyer as well. The reason for this? What happens if I die? Does the money get divied up based on a will? What if instead I was still able to help those same people in the same way? If I don't want to spend the rest of my life administrating money, then what are the options? I'd be quite happy for things to be in a trust. The responsibility can then be shared and there's no ambiguity as to how things are administered. In which case, I could then figure out what I needed on a yearly basis and have a yearly amount just like everyone else.

The change to my life would be having the money to be able to not worry about money and thus be able to use my time for other things. Volunteer efforts or simply having the time to do what I want to do.

This has an effect on the name the cheque gets written out to. How long does it take to set up a trust? And any structure put in place to reduce tax exposure? In other words, there really is no good reason to go and collect Lotto winnings right away.

So I think I've now got the plan. All I need now is to win Lotto. Any pointers anyone?

For the time being I have to go away and apologise to everyone who I told that I'd be winning Lotto. It turns out I've been caught out in a lie.

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