7 Crucial Things You Must Do If You Win the Lottery Jackpot
Hype about big lottery jackpots can be intoxicating. With millions of dollars on the table, even those who normally don’t play the lottery might be convinced to drop a couple bucks into the game of chance. Even though the odds of winning are still drastically against the player, there aren’t too many people who would say no to a giant wad of cash.
However, some who find themselves with a windfall quickly realize that spending the cash poses as much of a problem as it does an enjoyable opportunity. With the need for balancing immediate enjoyment with longer-term goals, it can be difficult to properly budget out a large sum of cash.
Although no one is saying that there isn’t room to fit in that dream vacation once the millions have been hit in the lottery, a degree of prudence can go a long way to making sure that you don’t run out of money anytime soon. With that in mind, let’s examine seven tips to wisely using lottery winnings.
1. Acquire good assets
Don’t spend that money just yet!
It’s one thing to spend money, but it’s another thing to spend money on assets that will build equity or that will retain value should you need funds at a later date. A fancy car, for example, is an example of an asset that will quickly depreciate, whereas a fancy house will probably retain value. You often hear about celebrities and previous lottery winners going broke because they spend too much money on depreciable assets. Even when you buy a new, more expensive house, keep in mind the higher property taxes and maintenance costs.
Even specialty or luxury items, such as collectibles or artwork, have significant resale value, making them fine choices to put in dollars today and still have resources to dispose of further down the road if need be.
Next: Do this before you touch a dime of the money!
2. Build a team for you
You need a lawyer, an accountant, and a financial planner. There are plenty of people who specialize in financial management for people with money that don’t know how to properly budget their resources. While many of their clients are athletes or movie stars, there’s room for lottery winners as well.
Having a financial manager can help you to plan ahead for the future, all while making choices that maximize the amount that your money can earn if you don’t need it immediately. You need to protect yourself and your newfound money.
Next: Should you chose the annuity payment or go with the lump-sum?
3. Consider taking the annuity payment
Lotteries do not actually pay the face value of the jackpot up front. Rather, they offer winners a choice of a reduced, lump sum payment, or an annuity in which the full jackpot value is paid over the course of the next 30 years.
If you don’t think that you’ll be able to resist spending all of the money at once, you may want to consider choosing the annuity option, which will force you to pace your spending, all while giving you access to the same total sum of money, adjusted for compounding and interest.
Next: A way to make your winnings work for you
4. Invest in stocks (index funds)
You don’t have to be a Wall Street guru to know that it’s a good idea to set some money aside, and there’s no better place to store away funds than in the stock market. While you may be tempted to speculate, it is often better to take a diversified approach, investing in order to capitalize on steady market trends rather than wild swings.
In this way, putting money into the markets is simply a way of storing it for later use while acquiring some additional value rather than an additional gamble because you’re feeling lucky. Once again, this is where your superstar financial management team comes into play.
Next: Don’t assume you have retirement all figured out.
5. Save for retirement
You officially don’t have an excuse not to save for retirement anymore. Retirement may start the day after you win the lottery, but it’s still a good idea to save for your old age. A 30-year old lottery winner will need the money to last on the order of an average of 50 years, if not more, so spending the money is more of a marathon than a sprint.
Setting aside some money can also have tax benefits, and it ensures that, should something go wrong with the rest of the funds, at least some of them will be safe and sound for later use. Remember, retirement isn’t only about the money. You need to plan for how you will spend your newfound time responsibly.
Next: This next tip is essential.
6. Get rid of debts
Many Americans carry an excessive amount of debts, be they student loans, mortgages, car loans, or extremely high-interest credit card debt. Paying off obligations is a good first step to take with any winnings, as this immediately stops you from losing money on interest payments. Besides, it’s a great feeling to be debt free, and getting rid of your debts is probably something that you would want to do sooner rather than later anyway. Remember the feeling getting debt free is like, and make sure you don’t blow your lottery winnings and end up in debt again.
Next: An unconventional way to use your lottery winnings.
7. Put money into start-ups
This may not be as crazy as it seems. Investing in start-ups can help you fill your crazy desire to spend, spend, and spend, with at least the potential to pay off big down the road.
Start-ups are some of the most speculative — and potentially profitable — businesses for investors to place their money in. While there is no need to be excessively risk-seeking, putting money into start-ups can be a good way to speculate while maintaining a reasonable chance of high returns, assuming that it is done prudently. Keep your start-up investments to less than 5% of your overall portfolio, and you can fill important and flashy without buying a supersize yacht that will slowly drain your funds.
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