If you won the lottery, you can go from rags to riches in a heartbeat – but runaway spending and toxic investments can burn through even a massive windfall like that in next to no time. Here are some examples of winners who went from (relatively) rags to riches to rags again.
The most common way that a lottery winner goes broke is by overspending. This can be because the winners are unable to distinguish between monetary and non-monetary gains and losses. In addition, some winners spend money on things they wouldn’t ordinarily buy on principle, or because it would be socially acceptable to subsidize their friends in the short-term.
Another cause is bad investment decisions. Lottery winners can be tempted to invest in risky assets such as stock options and derivatives, or they can be swayed by their emotions and fantasies. A third cause is poor accounting and financial management. It is important for lottery winners to understand how their investments are managed and to be able to withstand a thorough audit.
Taking steps to avoid going broke after winning the lottery can include setting up an LLC, setting up an emergency fund, and hiring a crack team of helpers. It’s also a good idea to hire a media advisor who can help them navigate the onslaught of press. If that’s not possible, a lawyer can help them form an anonymous trust to keep their identity hidden from the public.