What to do if you win the lottery (and also if you don’t)

The fact that you can't live on the income from a lottery win doesn't mean that it can't change your life, so what can you do to achieve this?

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20.Dec.2021

Who hasn't dreamed of winning the lottery some day? Unsurprisingly, this was exactly the slogan used in one of the Christmas Lottery campaigns. At the end of the day, the 400,000 euros of the El Gordo lottery can change your life for the good, provided that you know how to make use of this manna from heaven.

However, getting hold of it is easier in theory than practice. So if you’re thinking of telling your boss where to get off, perhaps you need to think twice. Living off an El Gordo win IS possible, but it’s not easy. To give you an idea, if you would like to have an income of 30,000 euros a year after tax, you would need an annual interest rate of 11 percent.

Getting this kind of return is possible, but to do so in a sustained way is more of a pipe dream. The fact is that the average market yield over the last 10 years has been around 8 percent, and this is before discounting taxes and investment-related expenses.

Luckily, the fact that you can’t live on the income from your lottery win, at least if you just invest it, doesn’t mean that the Christmas Lottery can’t change your life. What can you do to achieve this? There are three essential tips.

Don’t forget the Tax Office

If you don’t want an unpleasant surprise, remember that the Christmas Lottery is no longer exempt from income tax. Indeed, the Tax Office is entitled to keep 20 percent of all prizes over 40,000 euros.

In practice, this only affects the top three prizes in the Christmas Lottery. This is what you would be left with in each case after tax:

  • First prize. Of the 400,000 euros, you would pocket 328,000 euros.
  • Second prize. Of the 125,000 euros, you would be left with 108,000 euros.
  • Third prize. Of the 50,000 euros, you would take away 48,000 euros.

The other prizes are tax-free as they are all below 40,000 euros.

Give yourself a treat

Winning the lottery is a reason for celebration! Use some of the money to give yourself a treat, which is precisely what playing the lottery is all about, among other things.

Having said that, don’t splurge half your prize money on your treat or on other expenses like building work on your home. You can use between 5% and 10% of your Christmas Lottery prize, which in the case of El Gordo would be between 16,400 and 32,800 euros, more than enough to celebrate your good fortune.

If you’re asking yourself why you shouldn’t spend the whole prize, you’ll find the answer in the next point.

Let the prize money bring you closer to financial freedom

In other words, put your money to work and make this Christmas Lottery win really change your life.

You could use the capital to pay off part of your mortgage and reduce your debt. This gives you a double win. On the one hand, the financial incentive of paying less interest, and on the other the peace of mind that comes from reducing your debt. The fact is that debts are one of the main reasons for financial stress.

As well as paying your debts, make the rest of the money work for you by making the most of your savings. In other words, invest a large part of your winnings. This is something that can really change your life and catapult you towards financial freedom thanks to compound interest.

To give you a clearer idea, if you invested 90% of the money, i.e. 295,200 euros, after 15 years you would have 623,965.4 euros if you manage to get an interest rate of 5%. Save it for 25 years and you will have achieved your first million euros, a sum that will produce an income you can live on.

How to create your own personal Christmas Lottery

And what if you don’t win El Gordo? If you’re among the vast majority, you won’t be lucky enough to have thousands of euros raining down on you. The good news is that you can create your own Christmas Lottery and even change your life without winning anything.

To do so, all you have to do is start saving and investing some of your money. For example, if you save 75 euros a month for 25 years, at the same interest rate of 5% you would end up with more than 45,000 euros. If you’re not sure about when to take the step from saver to invester, we’ll tell you how here.

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