Most lucky lottery winners end up losing their entire fortune within a few years. This is a quasi-universal law that affects the vast majority of lottery winners, as bad decisions start as early as the first minute after the draw. Let's see how bad decisions can be avoided in the first days or weeks after being chosen by the goddess Fortune. We will summarise them in 5 essential decisions and present them to you in the usual chronological order in which they should be taken.
The first The golden rule would be maximum discretion. The fewer people who know that we have won the jackpot or any other lottery, euromillions, etc., the better, much better. Not only for security reasons, but also to avoid, as far as possible, becoming a tempting lure for fraudsters, tricksters and unscrupulous and unscrupulous investment hunters. And bankers should also be included in this bag, as they will immediately be on the lookout for their prey as soon as they smell the blood of the nouveau riche and its irresistible liquidity. However, some bankers will have to be told, since the winning tenth or tenths must be deposited in a bank for collection and the corresponding 20% withholding, in other words, the first tax bite from the State. But be careful, You must use the bank and its friendly, elegant manager merely as an intermediary to convert the winning ticket into a current account with the amount already credited and net, and not as the manager or adviser for that money. Otherwise, the banker will try to immediately place that windfall into investments that ensure the fortune remains tied up within the institution for which he works, thereby hindering the freedom of movement and the decisions that the lucky winner will need to make in the coming weeks or months. That is why the second The key decision is that the cheque should be deposited at a bank for cashing and the corresponding tax deduction, but stipulating that the net amount (after the 20% tax deduction has been applied, as explained this feature article) without delay, doing everything we can to avoid having our money invested in any banking product, even if the manager himself assures us that «it’s the same as keeping it in a current account, but with a bit of a return». It wouldn’t be the first time, nor the last, that bankers lie through their teeth to invest their clients’ money where it suits them best, would it? Well, there you have it. Total mistrust of everyone and everything in the first few weeks, especially of bankers.
We shouldn’t worry if the money is «idle»—that is, earning little or no return for a few days or even weeks—until we have a clearer idea of who will be advising us on financial matters in our new life. That will be the third the crucial – and most difficult – decision we will have to make as newly wealthy people, namely choose the best and most honest advice. And the general recommendation is to seek out professionals who specialise in wealth management as a whole – that is, who have experts on their team to advise us on financial matters, naturally, but also on property, tax, legal and business investment issues. Because in the future we are going to need the services of all or almost all of them, and they will have to advise us in a fully coordinated manner. In other words, it is of no use to us to have, on the one hand, a law firm, on another a banker, on another a corporate/M&A firm, and on yet another a property agency or estate manager, with interests that are all little or not at all aligned with those of our family. We must have a single point of contact, that is, a firm that can offer us all these services in a highly expert and specialised manner. One that looks exclusively after our interests and fights the rest of the world to preserve our wealth and ensure it grows in the best possible way, whilst at the same time bringing us the happiness we desire.
Where can we find this type of company? Well, under the name of Family Office or Multi-Family Office. From there, we’ll need to meet with those we consider most reliable in terms of the quality of their equipment, and above all honest, to finally select one (or two or three, depending on how many zeros our lottery prize has) to whom we must entrust our affairs for at least the first year, to get our bearings and be able to assess their work with some perspective. Depending on the results, the service and the quality of management, we must constantly review and adjust this decision in the future, as it would be unwise to leave the management of our fortune in the hands of one of these firms blindly and indefinitely. In order to properly assess the family office services received, we will naturally need to acquire a basic level of knowledge. And a good family office should offer its clients the opportunity to educate them to the extent they wish. The more we are able to learn, the better we will be able to assess the wealth management service received, and our decision-making in this regard will be much more informed and sound. Indeed, if desired and provided one has sufficient knowledge, the fortunate individual may end up managing their own Single-Family Office (a wealth management office for a single fortune or family) with the support of that Multi-Family Office (a wealth management office for several families), which should assist you in setting up your own structure of advisers/managers/administrators, and in overseeing it over time.
The fourth The crucial decision we must make is to be very cautious with our initial expenditure, immediately after the draw. As new millionaires or wealthy individuals, we should not spend any money on expensive luxuries or necessities that we have not generated in the form of income. In other words, we should only start spending money once we have begun to earn it, generating it through the investments we are about to make with the help of the Family Office (FO) we have engaged. Any needs or whims we wish to fulfil should be communicated to our advisers, for example: «I want to buy a car or a house worth so much »as soon as possible’. And it is the FO’s advisers who must assess which investments should be made to generate the necessary income to meet their clients’ wishes within the shortest possible timeframe. Here, naturally, the FO must take into account the views of a large part of its team: financial advisers, property advisers and tax specialists. Optimising all these areas will undoubtedly generate the necessary income and significant savings on property and tax costs, which will minimise the cost that the Family Office represents for the client from the very first moment, that is, from the first joint decision between the client and the FO. Because a good FO must not only generate returns but also save on all kinds of costs and taxes.
If, on the other hand, the lucky new rich start spending before they begin to generate income and without proper advice on how to save money, the growth of their wealth will be far less impressive. And the magic of compound interest will mean that the financial picture in 5, 7 or 10 years’ time will be completely different for one group compared to the other, despite having won the same amount in the lottery and invested it in the same way. We are not saying that doing the right thing means not spending or enjoying the jackpot or the wealth obtained from the prize, not at all. The whim or the need to buy a house, car or boat, to plug financial gaps for oneself or family members, or to treat oneself to a trip around the world can still be achieved by making the right decision. The only difference is that you may have to wait a few more weeks to do so in a planned and coordinated manner, with proper wealth management. Nothing more. With the right advice, enjoying life is by no means at odds with making the right decisions and indefinitely increasing the family fortune. Among the clients of Cluster Family Office We have had a few lucky lottery winners who came to us at various stages after their win. And believe me when I say that those who took the longest to turn to a financial advisor deeply regret not having done so sooner, as they ended up losing a significant portion of their winnings along the way by making the wrong decisions, having been poorly advised by banks, estate agents and other parasites in the guise of advisers, partners and so on.
Once these four key decisions have been made following the award, the fifth The vital piece of advice we’d like to offer here to future winners of El Gordo, Primitiva and other lotteries may seem a bit repetitive, but they would do well to commit it firmly to memory because they will need to apply it thoroughly for the rest of their lives: never forget the third vital decision. The absolute priority will always be to constantly seek the most competent and honest advice possible, as well as to receive training from them. And they must focus their efforts on ensuring they are always in the best hands, comparing family offices, hiring only the best at all times, and at the same time learning from them to the best of the winner’s ability. Only in this way will the fortune stand a chance of enduring over time and bringing them happiness as it is passed on to future generations, guaranteeing their future and their well-being for life.
Let’s summarise the five essential steps to take immediately after winning a prize:
- Complete discretion
- Have the prize paid into a current account at a bank that deducts tax at source, and take a few days or weeks to decide on point 3.
- Seek advice from family offices and engage at least one (depending on the size of the prize)
- Don’t spend much until you start generating income (a matter of weeks)
- To continuously monitor the family offices we work with and learn from them.
Lady Luck doesn’t usually come our way twice in the form of a jackpot win, whether it be the Gordo, the Primitiva or the EuroMillions. That is why any mistakes the lucky winner makes from the very day of the draw will be irreversible. And they will determine not only the future of their newfound fortune but also the future well-being of the winner and their loved ones. If these 5 key points are not taken into account, no matter how many zeros the prize has, the chain of mistakes will eventually eat it away over the years, and with it the happiness of winners who believed their lives were sorted for good and who will end up being miserable. Oh, by the way, the same five recommendations apply to smaller prizes, that is, those of less than 500,000 euros.
P.S. You might like to have another read of the article we wrote in 2009 about the possible future careers of the award winners: «If you win the lottery, you have three options» or this one a true story with a tragic ending.