You’ve Won the Lottery — Now What Is the Next Step?
Whether they win $100 million or $1 million, nearly 70 percent of lottery winners lose or spend all of their money in five years or less. Why is this? We all dream about winning the lottery, about what we would do with that nearly unimaginable amount of money. So why, when a dream becomes reality, do we make such poor financial decisions? Below are seven examples of bad financial decisions that come from poor financial advice.
You’ve Won the lottery, Now Quit Your Job and Live That Life You’ve Always Dreamed of Living
Andrew Schrage, writing for his MoneyCrashers, discourages quitting your job just after you have picked that perfect lottery ticket. For one thing, you don’t want your boss to discover that you have won and to start looking for someone to replace you. Try to be silent about your winnings and it will serve you well. You still have a lot of financial planning ahead of you. It is the planning that will allow you to live the life you have always dreamed of.
Why Would I Hire a Professional? That Will Just Eat into My Winnings
This is totally false. Once you have won the lottery, you will want to reach out to an attorney who understands financial planning, and also a CPA and a financial advisor. These are the people who will grow your money and invest it wisely. Although you are paying someone upfront, you will make more money in the end by working with those who have the financial knowledge that you lack.
I Am Going to Tell Everyone I Know That I Won the Lottery
This can be a very bad idea. Instead of posting on Facebook that you have won the lottery, you might want to lay low for a while. Otherwise, people may be wanting money from you, either for donations or for causes that you do not support. You might even consider changing your phone number and even get a post office box for your mail. The fewer people who know about your winnings, the better. Abraham Shakespeare, a lottery winner in Florida, was murdered in 2009 after winning 30 million dollars. Another winner, Sandra Hayes, spoke about having to deal with greedy relatives who after she won the jackpot began contacting her incessantly.
I Should Buy That House I Always Wanted
First things first: pay off your debt. You want to start at zero before you start making big purchases. Those student loan payments, that mortgage you are still paying, pay it all off and start from neutral. After that, you will want to focus on emergency funds and retirement. Remember that to live the life you have always dreamed of; you must make sure that if you or one of your loved ones gets sick that you won’t lose that life you dreamed of by paying medical expenses.
I Should Provide for My Relatives
Of course, this should be one of your main priorities, but think of what Sandra Hayes, that lottery winner in Missouri experienced. After winning the lottery, her relatives became like vampires, she said, trying to suck all the money out of her. One of the most unfortunate surprises that may occur after you win the lottery is seeing a darker side to those people you have always cared for.
Money, of course, can bring out the worst of people. So, of course, you should provide for your relatives, but you must learn to say no. Do not allow others to take and take until you can no longer provide for yourself. You are the one who won the lottery, not them. This is your prize money, and you should live the life you have always wanted to live, within reason. You do not want to let your relatives live in poverty, but you do not need to give them half of your earnings so that they can feel as if they have won the lottery with you.
I Should Opt for the Lump Sum In Case Something Happens to Me
This is a tricky decision. If you take the lump sum, you receive less money than if you opt for the long-term payout. You should take the lump sum if you plan to invest the money wisely, meaning you contact a financial advisor whom you trust and invest the money with her. But by taking the lump sum you also run the very real risk of blowing through all of your money at one time.
Also, if the lottery winnings are 10 million dollars, realistically you receive only about five million dollars, after taxes have been taken out. The long-term payout does provide you with more money over a longer period of time, and you do not have to worry about blowing the lump sum. It almost ensures that you will budget your winnings. Another aspect to consider with the long-term payout is that you will be placed in a lower marginal income tax bracket, which means you will be taxed less on your lottery winnings.
However, a disadvantage to the long-term payout is that you will lose the ability to earn compound interest on your winnings. You also have limited access to your winnings, so if you want to purchase something large or pay off a large chunk of debt, you will not be able to do this right away. If you have a lot of debt, and you are paying interest, you might consider taking the lump sum and paying off that debt rather than taking the long-term payout and continue to pay interest on money owed.
Winning the lottery, although statistically improbable, does occur, and if you are among the lucky winners you should know how and where to invest your earnings. More lottery winners have ended up broke and unhappy than rich and living the lives they have always imagined for themselves. However, if you are wise about investing and about how you spend your money, you may avoid these problems and become one of the lucky few who win the lottery and prosper.