What to do with Lottery Winnings

One of many advantages of living in Australia is that lottery winnings are not taxable.

Why is this?   Well,  if you read the fine print for the various  Lotto games offered (Saturday, Monday and Wednesday) it says that the money is distributed  60% on prizes and  24% goes to hospitals.

So the Government, in its wisdom, has decided that Lotto is a  worthwhile redistribution of money amongst the populace with a goodly whack going to finance our hospitals, so why discourage this activity by taxing it excessively?

Of course,  the government gets its fair share of tax when you spend the winnings (GST) or invest the money to produce dividends.    If you are on a  Government pension then each 6 months you have to declare your financial status (including Lotto wins) and this determines how much they will pay you each fortnight.   If you are lucky to have won several million dollars  in  Lotto  then  they  may decide that you no longer need a pension,  so this income stream reduces to zero, or there abouts, and fair enough!  So financially  you are now on your own.

What to do about it?   I have never been in this fortunate situation although I am working on it.

What do you do if suddenly you win a million or two in Lotto?  I see no problem and it is all very simple.  The chances of you winning much more than this is very remote and will not be discussed.

First priority is to pay off all debt.   Pay off your mortgage,  car loan,  credit card and become debt free!  Have you got any money left over?  I hope so.

Second priority is to establish a ready cash reserve of say $100,000 which will pay some interest income.  Split it equally between two reputable banks or credit unions in cash deposits and short  to medium term deposits.    

Third priority is to establish a regular income from investments that is inviolate and will enable you  to enjoy  a comfortable standard of living (say $50,000 per year) and so allow you to pursue what ever interests you have without having to worry about how to pay the utility bills,  rent or whatever.

Now you are sitting pretty!   You don’t need to go rushing to a financial adviser to do this.  They may rip you off  and you will end up with much less money.

So how to invest  what is left over after paying off your debt and having a ready cash reserve?

There are two major investment channels that produce income and they are real estate (property) and the stock market.  You can invest in both or  go predominately in one or the other, depending on your temperament, age and financial knowledge.  

The stock market has the advantage of high liquidity compared with real estate or managed funds invested in property.   To invest in the stock market you need to have a rapport with system and keep a close watch over what’s going on.   You need a  trading account with a reputable online company, such as E*Trade which operates worldwide.  If you can achieve yearly dividends of  5%  you are doing OK,  but hopefully you may also enjoy capital gains much greater.   What stocks you don’t like you can sell at the click of a mouse whereas it can take you 6 months to sell a house or apartment.

What your investment strategy might be  is very personal. In my case, living in Australia and being a part pensioner,  I would have no hesitation  right now investing a million dollars in the stock market  to include  BHP Billiton (largest mining company in the world),   Woodside Petroleum,  Santos,  Woolworths,  a bank or two such as Westpac and CBA and a few other growth companies.  This would give me close to $50,000 in dividends each year.

So there you are. It is not a problem winning a million or two dollars from Lotto.  Don’t let a lot of  financial advisers and lawyers deprive you of your Lotto winnings! Que tengas suerte!