Imagine you actually won the lottery.
For this thought experiment, let’s say it’s a “small” lottery win.
One million dollars.
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Let’s consider how far one million dollars goes in our current economic climate.
Spoiler Alert: not as far as any of us would like to believe.
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~ House ~
Let’s say you don’t have a house and want a house.
Choose your own adventure.
Let’s imagine you want to buy your house straight up, in cash. We know there are reasons for doing so.
Ok. We bought a house. (Cracks fingers.)
How much? Let’s say $450,000.
This is obviously the largest investment. We’re working under the assumption here that buying a house remains a wise asset to have and not an albatross around our neck. Depending on what region you live in, there are many reasons I’d be skeptical to buy a house (read: climate nomads). It’s also, presently, historically, the worst time to buy a house vs. rent in history (since recording began). Bearing this in mind, we would be waiting a little while for the market to cool down before actually sinking six figures into a house. Let’s imagine we’re buying this house in 2026 or 2027 and, if we’re lucky, we’re getting more house than if we bought a house right now for the same price.
All we have to worry about it property taxes now, right?
Kidding. We know there are other expenses. Let’s just hope nothing over $5,000 breaks in the first year.
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~ Property Taxes ~
This is an annual expense, of course.
I’m basing this on my geographic location (where I definitely cannot afford a house).
Hereabouts, people pay more than $9,000 in property taxes a year. No joke.
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~ Moving Costs ~
Let’s make it easy on ourselves. We just got a bunch of free money. Let’s avoid a back injury.
$5,000 for overall moving costs.
This would probably include buying a few new bookcases (preferably from the cool consignment shop nearby or an estate sale).
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~ New Car ~
Not everyone is going to need this. Or want this.
If you like cars at all, winning the lottery is usually your big excuse to be a little extra in the car buying department.
Don’t go insane.
Let’s cap the car purchase at $35,000.
You can do something positive on the environmental front here, too.
We’re making some swift progress when it comes to electric cars but many experts still say we’re two decades away from having a grid system that is less reliant on fossil fuels. Big Oil isn’t going down easy.
Electricity comes from somewhere right? Follow the money and you discover the raw materials that are being used to generate that electricity.
I’ve been told by people in the field that hybrid cars remain a sensible choice.
A new Toyota Corolla Cross Hybrid will run you $28,000-32,000.
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~ Charitable Donations ~
We’ve reached my favorite part.
You get to play philanthropist.
Hell yeah!
I’m not trying to claim I’m more altruistic than the next person. It feels good to give.
Based on cursory research, given the scenario of having one million dollars liquid, it would not be entirely unreasonable to donate $80,000 over the course of the year following your lottery win. Something to keep in mind (again, if I understand correctly), is that you can only donate a maximum of $15,000 to an organization “without penalty” (we’re talking taxes here). Yes, you’re now in the category of Asset Management where people start to think about taxes a little different.
A new tax bracket, a new mindset. Sigh. World we live in.
The smart thing to do is consult a financial advisor.
Here’s where I have to say that nothing I’m writing in this piece should be taken as financial advice. I am not a certified financial planner or anything like that. I’m just a passenger on this trip.
Someone who knows more than me about money management will inform you about the difference between Asset Management and Wealth Management. Aha. Here’s where you learn what it means to be “wealthy” in America.
What gets you into the Wealth Management class? About $3,000,000.
If you have $3,000,000, then you can afford to donate $80,000 annually. This assumes you are still generating some form of active income and not relying exclusively on passive income.
If you have just own a million dollars in the lottery and don’t have a real job… well, maybe keep your donations a little lower until you start getting dividends from your investment account. Well get to this soon.
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~ Regular Bills ~
Hey, everyone’s favorite category.
The stuff we spend money on that we don’t really want to spend money on.
Thanks Capitalism.
Oh, Amazon Prime Day? Yeah, I’m looking at you.
Things we buy on the internet for no reason are not in this category. Those are discretionary spending. Being a Minimalist in a Capitalist world is no easy feat. Take it from someone who has long been interested in the concept and is simply not well-wired for it given the environmental and social factors of our time. It makes me sad.
I’m going to say that these so-called “regular” bills should amount to about $5,000 annually. This is going to vary a lot from person to person. I’m not judging your lifestyle, really.
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~ Transportation Expenses ~
Getting places. Gas. Car repairs. Rideshare. Public transportation. All that good stuff.
I figure let’s be safe and say $13,000 annually. This is definitely way more than it should be just to play it safe.
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~ Food ~
I mean the stuff you make and eat at home.
$9,300
Remember, we won the lottery. Let’s eat well.
Also, take a moment and donate to your local Food Pantry.
I have not won the lottery but that doesn’t stop me from regularly donating to Kiva (international micro loans), Philabundance, Defenders of Wildlife, and a number of other charities.
I know this is necessary because statistically it’s not rich people that donate the most money. The people that don’t the most money to charity know what it’s like to not have money. The people that have lots of money are not always eager to part with their money—and that’s part of the reason they have a bunch of it sitting around getting dusty.
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~ Dining Out ~
This is where you may want to live it up a bit post big lottery win.
Let’s say $10,000 over the course of the year.
That is a lot of fancy meals.
Also, please do not forget to tip 25%. 25% is the new 20%. Trust me.
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~ Insurance ~
Health insurance. Car insurance. Life insurance. The list goes on.
$10,000.
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~ Misc. Spending ~
$10,000 in “play’ money.
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~ Housing Maintenance & Repairs ~
If you just bought that new house, you shouldn’t have any major repairs in your first year.
I’m really hoping there’s a “lemon law” or related that would come into play here. Sadly, I don’t think there is.
Fingers crossed, $2,500.
That money isn’t because you want new blinds or a new screen door or to re-paint a room. It’s because something broke and now as a homeowner you actually have to fix it yourself or pay to have a professional do it for you.
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~ Personal Expenses ~
We all have them and it’s not really anyone else’s business.
$3,000
If you need a lot of money in this category I am frankly worried for both you and your loved ones.
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Keeping all of the above in mind…
Total expenses: $641,800
>>> This leaves $358,200 remaining. <<<
>> Keep in mind, $80,000 went to charity in this scenario. <<
> We discussed how this is likely too much for your average person in the first year… even given you just won a million dollars in the lottery (!!) <
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~ Stay Liquid ~
Suggestion: Keep $50,000 liquid. Available. In case of emergency.
Suggestion: Keep $50,000 in a checking account
Suggestion: Keep $50,000 in a high interest FDIC-insured local bank or credit union that offers a decent percentage interest (say 5%). You might be able to get around $2,000 in interest in that first year.
Keep in mind, your average American household struggles to get together $400 in an emergency situation.
A vast number of Americans live paycheck to paycheck. Maybe you’re one of them.
We have never lived in a time where there is greater wealth disparity.
It is frankly staggering that the people have not risen up in revolution given the level of economic injustice. Just sayin. Not encouraging by any means whatsoever.
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~ Invest ~
Invest $100,000 of your winnings.
Play it safe.
A lot of folks have to learn this for themselves the hard way.
There’s a reason to have a diverse portfolio.
There’s a reason to expect smaller returns year over year (YoY) of 8-12%. Be happy with that.
The alternative is often losing money.
If you’re investing without large sums of money there is a significant chance you will lose money.
This is partly because people who invest without large sums of money may face an emergency situation that results in the need to take money out of their investment portfolio at an inopportune money during market fluctuations. The result is taking a loss.
People always say not to invest more than you can for a very good reason.
Often, I’ve heard it suggested that no more than 5% of your net worth should be invested in the market.
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~ Retirement ~
Talk to a financial planner about how to divvy up $100,000 between a Roth IRA and other safe long-term investment strategies.
Already retired. Well then, all bets are off I suppose. (Kidding.)
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~ Travel ~
You might want to go a few places with your lottery winnings.
Don’t be a bad tourist. Go somewhere for a reason and have meaningful experiences.
Support the locals while you travel and soak up the culture in a polite distanced way.
Don’t be the ugly American.
$8,200.
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A few notes:
The annual average spending for two people per year is in the U.S. is typically around $87,000.
$41,000 for an individual.
I get easily confused between medians and averages.
What’s an American worth? Kidding, not kidding. Sadly.
The median American household as of October 2023 varies considerably based on age ranges (generations).
A household under 35 has a median net worth of $35,000. They have an average net worth of $183,500. Why the larger net worth? Probably because they have student loans, a car payment, and other debt.
A household of geriatric millennials (35-44) have a median net worth of $135,600 and an average net worth of $549,600. Why? Some millennials actually have managed to buy a modest house. And/or they now make a living wage.
Gen Xers (45-54) have household median net worth of $247,200 and average net worth of $975,800. They’ve been working a while. This is pretty much the whole answer. The numbers go up but suggest the same for the 55-64 category ~$364K (median) and ~$1.5M (net).
Young Boomers (65-74) still have money they’ve saved and are hopefully able to semi-retire and do something they actually enjoy with their time. Median net $409K and average net $1.7M. This is actually not that much to live on for the rest of your life. Given all of the above, this should provide ample context.
Boomers/Seniors (75+) have a median net of $335K and average net of $1.6M. Unsurprisingly, if you are lucky enough to live to a respectable age, then you have had to use your saving and social security to pay for everyday costs of living, medical expenses, and, let’s be honest, supporting the younger generations that have had a whole lot of failure to launch problems for completely understandable reasons that are well beyond their control.
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Again, I must say, I am not a financial advisor. Please consult a trained professional before making financial decisions that can have an impact on your present and future life.
There are some lotteries that are run as fundraisers for institutions like hospitals that don't have the same high jackpots but instead focus on drawing prizes in exchange for a large monetary sum. In those ones, getting the money together is for a good cause.
I imagine these expenses are one of the reasons why lotteries like Powerball have upped their jackpots into the multi-million dollar range- they don't want the winners going broke immediately.