It might seem like the best thing that could ever happen to you–winning a multi-million dollar lottery jackpot. Many people dream of doing just that, and I admit that I have spent a happy hour or two thinking about what I would do with all that money–even though I don’t ever play the lottery in the first place.
But as many former lottery winners can attest, there are positives and negatives to winning large amounts of cash. As fun as it would be to buy whatever you want, retire from working and vacation whenever and wherever you want, and never have to worry about money again, there are also relatives and friends with their hands out, huge tax burdens, and the guilt that some people feel about having so much when others have so little.
If you are ever so lucky as to win the lottery, there are some steps you should take to avoid being among the estimated one-third of lottery winners who go bankrupt after winning, (a higher number than non-lottery winners who go bankrupt). It’s easy to waste a lot of money when it feels like it will last forever, but it won’t last if you don’t make good decisions about it from the very beginning.
Here is a run-down of what happens when you win the lottery and some steps you can take if you should ever be fortunate enough to hit the big jackpot.
First Things First–Make a Plan (With Expert Help)
Before you even claim your winnings, you should meet with a lawyer and accountant or financial planner to talk about the implications of your windfall and how to best handle it. In most cases, you have three months to claim your prize, and you should take some of that time to plan your course of action before you even step forward as a winner.
CNBC recommends signing your ticket, making several copies, and stashing the original in a safety deposit box, which you can rent from your local bank. Whatever else happens, you don’t want to lose the ticket while you are making your plans, because possession is everything in this situation. If you don’t have the ticket, you can’t claim the winnings.
While your winning ticket is stashed away, you should find out about your options and how much you will have to pay in taxes so you know how much you will actually walk away with in the end. Your two options for payment are usually an annuity, which splits your payments into 30 equal installments, or a lump sum cash payment, where you get all the money at once.
The annuity payments will add up to the amount that the lottery advertises as the winning amount, but most people take the lump sum cash payment, which is less than the total of the annuity payments, because they figure they can invest most of the money and make more from it than the annuity payments would be worth. Some people do take the annuity payments, however, especially if they fear that they will make bad decisions with the lump sum and lose it all quickly.
What Do You Want to Do With the Money?
Once you decide how you will take your payout, you should take some time to think about what you want to do with your money. I always said that if I won hundreds of millions of dollars in a huge payout, I would want to start a charitable foundation and give away most of the money to people who need it, to make a difference in the world. You may have a different dream, but it’s important to know what you want to do so you can plan accordingly.
A huge windfall can make things possible that you never thought you could do. You can quit your job if you don’t like it, and you can do the thing you’ve always dreamed of doing: open a store or restaurant, write a book, or get the training you need to do just about anything you want with your life. Sure, it’s tempting to just live a life of luxury and not work at all in any capacity, but it won’t make you as happy as you think or be as good for your life as doing something meaningful will.
Even if you win a smaller but significant amount of money, like the $1-2 million payouts that happen with the MegaMillions and Powerball when you match most, but not all of the numbers, you will want to make a plan for how the money will be used so that you don’t fritter it away on a bunch of fun but unnecessary things and end up with nothing.
For any significant amount of winnings, it’s always a good idea to invest some or even most of the money so that first of all, you can’t spend it all, and second, your money makes more money for you. Considering how you might want to use some of the money to help friends and family members is also important because giving big gifts can mean that people have to pay taxes on the money they get if it isn’t given in the right way.
Keeping It Quiet (As Much As You Can)
The more people who know about your winnings, the more people will ask you for money. You will have to develop a strong backbone and thick skin because people are not very nice sometimes when they don’t get what they want. This aspect of winning the lottery is often the worst for people because it can be hard to tell who your real friends are and hard to know who to give money to and who to politely decline.
Keeping the windfall relatively quiet will cut down on the requests from practical strangers who suddenly want a handout, and may end up saving your sanity in the end. While the lottery and newspapers often want to write stories about lottery winners and publicize who they are, you may be able to identify yourself only by your first name and last initial or otherwise obscure who you are for these media appearances and keep too many people from finding out.
Keep Living on a Budget
It can be tempting to develop a habit of buying everything you impulsively want–even houses and cars and other luxury items. The best defense against this type of spending is to put yourself on a budget and enforce it with accountability through the accountant or financial advisor. There are ways to set up your finances so that you can only get to a certain amount of money at a time, and your lawyer and accountant can assist with this arrangement so that you live within the means you’ve decided to give yourself.
Even hundreds of millions of dollars can be spent before the end of a person’s lifetime if they decide to do so, but living on a budget–even a generous one–will keep you living reasonably and avoid the excessive spending that has caused so many lottery winners to go bankrupt.
Live With Character and Integrity
Having character and integrity is always important in life, not just if you win the lottery. Making decisions from a place of morality and good character will strengthen you and help you handle the stresses that sudden large amounts of money can often bring. To determine what to do if you win the lottery you need to consider what is important to you personally.
Having a lot of money may mean you can get away with a lot of things that other people can’t, but that doesn’t mean you should take advantage of your situation. It’s always worthwhile to you and others to live with character and integrity, and it will make your life far more satisfying than a bunch of money ever could.