The internet is awash with stories of people who won the lottery, often running into millions of dollars, only to go broke in a few years. From William Post III who won a $16.2 million jackpot to Evelyn Marie Adams who won two lotteries, totaling $5.4 million, the list is endless.
These people could have secured their financial futures with the millions they won. But, wrong decisions saw them go broke and even file for bankruptcy within just a few years of winning humongous jackpots.
You don’t have to go the same route. Here’s what to do if you win the lottery;
- Don’t make big investments
Investor Mark Cuban, a member of the Shark Tank says that lottery winners shouldn’t take the lump sum. “You don’t want to blow the windfall in one spot,” he says. According to Cuban, a better plan is to opt for annuities.
The reason is that investments can fail; it’s possible to lose everything. If you put the money in the bank, however, you can sleep easy knowing that you won’t lose a coin. By taking out just a small amount every year, you can live off the winnings for the rest of your life.
- Don’t quit your job
At least, don’t do it just yet. Sometimes the excitement of winning the lottery causes people to miss work and eventually lose or quit their jobs. Don’t make that mistake.
In fact, don’t let the news leak too early. Keep the information to yourself and continue working diligently as you figure out the best way to spend the money. It’s okay to retire early; but only when you’ve made short and long-term plans.
- Live within your means
Newfound wealth can also cause a person to start spending on anything and everything; even on things they don’t really need. Remember that even $100 million can get depleted fast if you don’t spend cautiously.
So, be wise. Begin by sticking to a household budget. Don’t blow $5,000 on groceries in a month just because you can. Also, you don’t have to buy a house immediately or move into a 10k/month house. Be a little frugal.
- Hire competent advisers
Unless you have experience managing millions of dollars, you’d do with professional advice. At the very least, you need to retain a competent lawyer, accountant, and financial advisor.
Financial advisors, in particular, are vital. If you decide to invest a portion of the money, the adviser will know the best investment opportunities to consider. Surrounding yourself with lawyers helps ensure that you’re not breaking any laws in the process.
- Remain anonymous
While it’s not out of order for winners to share their winnings with family and friends, you can’t afford to give everyone in the local area a few hundred; you’d go broke within days. For this reason, avoid publicity.
Even worse, letting everyone know that you recently won a $100 million jackpot puts a target on your back. Scammers, thieves, and every other bad guy will want to track you down. To avoid these issues, remain anonymous.
- Get insurance
If you’re unable to stay completely anonymous, then you’ll need insurance. Why? Because there will be a lot of people determined to grab some of your newfound wealth. Both individuals and organizations will be filing lawsuits, one after another, just to get a share of the cake.
It’s a good idea to hire an estate-planning attorney and insurance specialist to protect yourself and your assets from such people.
- Save the rest of the cash
One way to approach this is to add up your basic expenses and create a ‘personal pension.’ List down the things you’ll need when you retire and make sure that all the essential items are covered.
It’s also advisable to max out on your 401(k) for the year and set up and emergency fund. Even millionaires run into financial problems. An emergency fund will help you weather the rainy days.
The Professionals Will Help
The good news is that if you hire pros (including an accountant, an attorney, and a financial advisor), you won’t have to draw up every plan alone. The professionals will help you make tried-and-tested decisions for long-term gain.
Photo credit: Mike Mozart.
