Do you daydream of winning the lottery? Even as a Daily Money Manager, I too fantasize about winning the big jackpot. Sometimes money can make people crazy… whether it’s an inheritance, unexpected windfall, or something like winning lotto. So here’s my advice.
Ok, I admit if I found out my lottery ticket was worth millions I’d do a major happy dance. Of course, you’re going to be excited. Before you quit your job and go on a spending spree, take a breath. You want to protect yourself and create a plan. According to Fortune magazine, 44% of lottery winners were broke within five years. Nearly a third had to declare bankruptcy, meaning they were worse off than before winning.
If you can, stay anonymous (state laws vary on this requirement). You’d be amazed and dismayed about who crawls out of the woodwork to grab a piece of a newfound fortune. A Forbes article recommends creating a limited liability company to receive the winnings.
Find Trustworthy Advisors
With new wealth comes responsibility and potential complications. Seek the advice of professionals, ones that you can really trust. As you interview financial advisors, lawyers and CPAs, don’t disclose your big news at first. Check references and determine if they are a good personality and ethical fit before disclosing your big news. Experience as a Daily Money Manager has taught me having the right professionals on your team is absolutely critical to long-term financial health and happiness.
Avoid Sudden Lifestyle Changes
It’s only natural that you’ll want to splurge. Before making any changes to your lifestyle, spend time planning. You’ll have plenty of time to spend your winnings. Studies of lottery winners who retain their financial freedom make considered and well-thought out decisions.
Pay Off Debt, Fund Retirement, Start an Emergency Fund
Paying off debt does several things. It frees up assets (like a home) and it also gives you peace of mind. Next, take your winnings to fund your retirement accounts so you’re set for your golden years.
Depending if you take your winnings as an annuity or as a lump sum, you may have less than you initially thought due to taxes or professional fees. Be conservative and start an emergency fund. Once all the details of your new financial situation settles, you can start planning that exotic vacation.
Consider Your Legacy
According to a study on charitable giving, when people donate to a worthy cause the midbrain region of the brain lights up. There’s a physiological and psychological impact when you help others. If your lottery winnings allows you to set up college funds for all your children, nieces and nephews… great! Have millions left over to start a foundation… wonderful! Remember, your first step is create to a solid plan for your future.
What would you do if you won the lottery?