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American Morning
Strategy for Folks Who May Win Big Powerball Jackpot
Aired August 23, 2001 - 10:50 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: People across the country waiting and hoping to win the $193 million Powerball jackpot last night, well, no one got that grand prize, but players can try again for Saturday, when the multistate lottery is expected to approach $300 million. So let's say you win? What would you do with all of the money. Our guest today has the strategy for folks who strike it big. Ric Edelman is the financial adviser and the author of "Ordinary People, Extraordinary Wealth," joining us from Washington.
Ric, good morning.
RIC EDELMAN, FINANCIAL ADVISER: Good morning. Good to be with you.
KAGAN: Good to have you with us.
Now that you are bigtime, you do "Oprah." Good to see that you talk to us ordinary folk.
EDELMAN: I would never leave you.
KAGAN: Absolutely, we appreciate that.
Well, this was a bummer today. I read, even if you are a lottery winner, you need a budget.
EDELMAN: Yes, it's astounding. Money is not a bottomless pit. Even if you win tens and millions in the lottery, you can actually run out of money.
KAGAN: People often file bankruptcy, is that right?
EDELMAN: It's all too common. Once they go through the dollar amount, they end up broke, and the academy stories are too clear. Poverty, depression, divorce, suicide are all too common upon lottery winners.
KAGAN: It sounds bad, and yet winning the lottery I think a lot of people are saying that's a problem that I would like to try.
EDELMAN: I know. I don't think I'm dissuading anybody from buying lottery tickets.
KAGAN: I know. But let's -- help us do some math here. Not a mega-megapot, like $300 million. But let's say you win a $20 million jackpot prize, how does that break down?
EDELMAN: The first thing that happens is you have to pay taxes. You're going to lose about half of that $20 million to tax, and you have about $10 million left, and out of that $10 million, you're probably going to want to splurge a little bit. You're going to buy a really nice house. You're going to buy a couple of great cars. You're going to go on a big, fancy vacation, maybe some jewelry and Rolex watches.
KAGAN: Don't forget the relatives.
EDELMAN: I'll get to them. On splurging alone, you're going to spend probably $3-$4 million. That leaves you with $6 million left. Now you're going to give money to relatives, and friends and family members, and some charities. You'll probably give $3 million or so of that away, and now you have $3 million left, and with that $3 million, you're going to generate an income stream. You're going to invest that $3 million, and you're going to invest the money, generate income, and that's going to generate an income off of $3 million of about $7,000 a month, and you're going to pay taxes on that.
KAGAN: And that's taxed again.
EDELMAN: Exactly right. Which means, you are not rich, you are upper middle class on a $20 million lottery ticket.
KAGAN: But it's not quit your job, live in the mansion on the beach for the rest of your life.
EDELMAN: For most people, it really isn't. And yet, you will be forced to quit your job because you're going to experience a radical change in relationships. Your coworker are going to regard you differently, so will your friends and family, and total strangers, all of whom think that they deserve a good piece of your good fortune.
KAGAN: Help us live in a world that most of live in rather. I know you like to preach about building wealth in a practical way.
EDELMAN: Right.
KAGAN: So talk to us maybe as we stand in line and spend that $5-$10 on the lottery tickets, if we took that money and actually did something practical with it, how we could really build some wealth.
EDELMAN: Well, I can guarantee that you'll win the million- dollar lottery if you'll follow one simple piece of advice. A lot of people spend $3 a day on lottery tickets. Well, if you take that $3 a day, and instead of buying lottery tickets, you throw it into a stock mutual price for forty years.
KAGAN: Just $3 a day. That's like a latte.
EDELMAN: Three dollars a day, you'll have $1 million.
KAGAN: Really.
EDELMAN: So You can give yourself a guaranteed lottery winnings, or frankly, just hope for the best.
KAGAN: Just not as fun, Ric, you know.
EDELMAN: I know, I know.
KAGAN: I know, I know. But the end result is fun, so...
EDELMAN: You can either be rich, boring, or broke and fun, your choice.
KAGAN: OK. Have you ever bought a lottery ticket?
EDELMAN: No, I am afraid to win. I'd just rather work hard instead of get it easy.
KAGAN: Thanks for spreading some of that hard work here on CNN.
Ric Edelman, thanks for helping us see the reality of winning the big prize and how to build our own big prize. Good to see you.
You that too.
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