The PowerBall jackpot has now hit $500 million. Such occasions bring the usual photos of people lining up outside gas stations, and a more curious modern tradition: news stories reminding people that winning the lottery can ruin your life.
There is some actual research finding that, after an initial bit of glee, lottery winners revert to their old levels of happiness in a few years. The human brain seems wired towards a set point on happiness. Getting married makes you happy for a bit, then ceases to do so. While this sounds like a bummer, the good news is that this works in reverse, too: getting divorced makes you unhappy for a bit, but then you crawl back up to your previous happiness levels. Getting injured in a serious accident also bums you out for a bit, then you start focusing on all the things you can still enjoy. On the whole, this tendency is not necessarily a bad thing.
There is also some research (usually cited in these stories) finding that day-to-day happiness levels out at an income of about $75,000 per year. Add it all up, and it sounds like winning $500 million is for suckers.
But yet almost all of us would take it and I don’t think we’re all idiots. What these stories seldom note is that the median US household income is under $75,000 a year, which means that for most Americans, bringing in more money would in fact make them happier on a day-to-day basis. And while some research finds that having more money means you find it more difficult to enjoy small pleasures, there are also some ways that using that $500 million (or heck, a windfall of $500,000) could make your life happier, even if your household income is north of $75,000. After you consult a very good financial planner, get your head around the idea that financial freedom means mostly living off interest, and set up your investments so that your winnings will support you while still growing, here are some ideas:
1. Spend to buy experiences. Our first inclination when we get money is to buy stuff. Stuff is easy to get. You walk into a car dealership and walk out with a car! It is less easy to get an amazing week in Paris. You have to figure out what you’d like to do, or talk with a high end travel agent who will arrange this, and clear your schedule to go. Even if you have all the money in the world, you still need to arrange for someone to take your kids for that time or you need to make sure their passports are all updated to come with you, or you need to find and pay someone to feed your dog, etc. Even if you wind up hiring employees to help with your personal life, all this involves time and logistics. But in the long run, we tend to draw more happiness from memories than from stuff. So ignore the transaction costs, or figure out how to minimize them, and aim to make memories.
2. Spend on your social network. The real one, not the Facebook kind. It is true, that if you are suddenly and visibly worth $500 million, you may find new friends all over the place, and some of your existing friendships may take an undesired turn. But once you’ve figured out the people that are really important in your life (perhaps a project to undertake before coming forward as the winner), you can then spend in ways that nurture these relationships. You can throw big family parties, travel to visit friends and family more often (or pay for their tickets), rent a large beach house for a reunion of friends from college, etc. Giving falls under this category too. Take a bit of time before claiming your prize to figure out what causes are important to you — which parts of the universe you see as your larger network — and then give generously there. You can certainly entertain other ideas as they come to you (and people will bring them to you) but it helps to be clear on your own ideas first.
3. Spend to buy yourself time. We all have 168 hours per week, and all the money in the world cannot buy any of us a second more. Money can, however, buy back time from things you don’t want to do so you can devote that time to things you do want to do. So what do you want to do with your life? What did you want to be when you grew up? After you’ve spent two years traveling or doing other things on your bucket list, what would you actually want to do on Monday morning? Use your money to set up your life so you can spend lots of time doing that.
Do you know anyone who’s experienced a windfall of any sort? How did that person handle it — well, or did you see room for improvement?