What are you going to use the lottery money for? Some whim, getting rid of the mortgage and plugging holes are the most common responses, although there are also those who consider going further and dream of leaving their job and living off the income. Is it really possible to live without working if you get El Gordo?
The key is to do the math and the first is to know how much money you will start with. The taxes for El Gordo de la Lotería amount to 72,000 euros. This means that only 328,000 euros will reach the winners’ pockets. That is the amount that will have to be maximized to know how long you can live without working if you win the Christmas jackpot.
Expenses and income, the key
The calculation to know how long you can live without working with the first Christmas prize is very simple: just calculate your annual expenses and divide the 328,000 euros.
As an example, the average expenditure per household in Spain in 2022 was 31,568 euros according to data from the National Institute of Statistics (INE). With that figure in mind, an average family could live 10 years without working with El Gordo’s money without discounting the effect of inflation. In other words, the cost of living rises every year and that money will lose value over time.
In any case, what you have to be clear about is that your standard of living will determine how far you can stretch the Christmas Lottery jackpot. In other words, expenses are key to the equation. The higher your lifestyle, the shorter the money will last or the more you will need to live off the income and vice versa.
For this reason, the main key to living without working if you hit El Gordo is to control your expenses.
Invest money to save time
Even controlling expenses, it is impossible to live without working with El Gordo if you don’t put that money to work. The only way to live off the income with that money is to get it to generate some type of return.
Logically, the higher the performance, the better. According to the calculations of the Preahorro website, if you use 7,000 euros to treat yourself to a well-deserved treat and invest the remaining 328,500 euros of the prize, you would have to look for returns close to 10% to achieve the 31,500 euros of average spending for a family. And that without considering the fiscal impact.
After paying taxes on these investments the figure will be even lower. The following table summarizes its evolution:
As the table shows, you will need to achieve high returns to be able to make a living from the lottery. Achieving a 10% return is possible, but doing so consistently is very difficult.
Furthermore, to achieve this we will have to take risks and accept that there may be years of declines where returns are not positive. What would happen then? Basically, if that capital is your only source of income, you may have a problem.
A more realistic calculation would be to think that you can obtain returns of around 4%-5% on your investments via dividends or with more conservative investments and know that this will help you extend the time you can live without working.
According to Preahorro’s calculations, a family that needs 30,000 euros a year could live without working, on the income from El Gordo, for 15 years if it achieves an annual return of 5%.
Adding less volatile recurring income: rent
One way to stabilize this income is to turn to assets that are theoretically safer or, at least, not so volatile. The most classic would be a rental home.
What house can you buy if you win the Christmas jackpot? 328,000 euros goes a long way and you will have plenty of options to choose what and where to buy.
The most repeated advice from those who are dedicated to buying to rent is to keep in mind that you want a house to rent, not one in which you are going to live. In other words, do your numbers right before you buy.
Among other things, you should look at the rent that you can obtain based on the price you are willing to pay. For example, in the Madrid neighborhood of Prosperidad the average rental price is 17.3 euros per square meter. For a 75 m2 house you would obtain a rent of almost 1,300 euros per month or 15,600 euros before taxes and without deducting expenses.
Taking both into account, you could obtain around 10,800 clean euros depending on the rest of your income. Of course, in exchange you will have to allocate around 300,000 euros to the purchase of the apartment.
For this reason, it is important to look for a relationship between the price of the house and the rent you can obtain that is advantageous and fits your objectives.
To help you understand it better, the average rental price in Getafe is 11.4 euros per m2, but you can find homes for half the price.
THE NAIS IS OFFICIAL EDITOR ON NAIS NEWS