How Roger Should Have Spent His Lottery Winnings To Avoid These Crippling Problems

Roger looked at his bank balance. Then looked again.

What had happened to the $10 million he won a couple of years back!

Oh, that's right... houses for all his family, plus the beach house in the Hamptons. Wonder how that place was being affected by Hurricane Sandy right now!

Then the trips, and the new cars for his friends. Amazing how it all added up.

Now he was down to his last $100,000. And by the rate he was spending, that too would run out in a few months.

He sat dejectedly in front of the financial advisor.

"If only I had done what you told me," he admitted. "How am I going to get out of this?"

"Sorry for your problem," said the advisor. "But you'll have to tighten your belt I'm afraid."

This scene is quite common among lottery winners.

In the real world we get ongoing security from our wages. But as a lottery winner we don't really want to continue with our job, because it simply goes against everything that money can buy - complete and utter personal freedom.

A job is very restricting to that freedom.

So, once we've won a little money, how do we replace that job?

How do we continue to keep the cash rolling in to pay for all the nice things in life without eating into the capital we now have from the win?

The way many lottery winners do this is by spending their win, bit by bit. Unfortunately that's why most of them like Roger are broke after a couple of years. The bits add up.

Because it is very easy to spend vast amounts of money very quickly. Part of the problem is that it is easy to get used to a new level of spending. It seems normal.

That's why even executives on a salary of million a year and more still have problems handling their money, according to many financial advisors.

So, what would the financial advisor tell Roger how to use his $100k?

Well, he needs to find a way to make his win capital produce a stream of cash that never ends:

- Buy income producing businesses. The best of these are franchises... lawn mowing, cleaning, maintenance, flowers, healthcare... anything that people need frequently. A lawn mowing franchise, for example, may cost $50,000, but return $1-2,000 a week. Some franchises will allow you to put in an owner manager.

- Invest the win and live off the interest. Interest on $100k is not much to live off, but may give back $5,000 a year. And for some people this $100 a week may be enough to take care of a few bills.

- Buy income producing property. Apartments/condos, car parks and retail space are some ideas. Commercial property usually returns 10% of the valued purchase price, so a $100k building should return $10k a year, less expenses, if you pay cash for it. Take a little more risk and use leverage to pay a smaller deposit, and your returns will be greater. Invest in a property syndicate, and there will be little work to do.

There are many ways to produce an income stream, but few that require no work. Roger will have to manage his funds carefully from now on.

If he had invested his $10 million at the start, he would still have the sum in his bank with the interest paying his living costs.

Make sure you don't follow Roger down the spendthrift path to problems. A lottery win is the largest amount you'll ever get - manage it wisely!