I think we all have dreamed of winning the lottery someday and what it would mean for our financial future. We think about what we would buy, how we would help our loved ones and friends, but also about what happens when you come into a large sum of money. A quick Google search and you come across horror stories of lottery winners who eventually go bankrupt. So how should you manage lottery winnings?
If you have solid money management skills (or even a money manager on your behalf), lottery winnings could set you up as well as your heirs for life. Money management is key. You should immediately contact a financial advisor, and one you trust. This way you can devise a plan for your winnings and the advisor will help hold you accountable to the plan.
Forbes informs us another important thing to do is remain anonymous if you can. Unfortunately, in Montana lottery winners are public record and they are announced. You should also determine what the time frame is for claiming your prize. Most states allow 180 days and one year from the date of the prize drawing to claim the prize. So, if you think waiting will let the publicity die down a bit, make sure you know the timeline.
Another great piece of advice before you claim your prize; talk to an accountant or tax professional. These folks can help you establish how much you will need for taxes and all the other complicated pieces of the lottery puzzle. You will be writing a very large check to Uncle Sam on your lottery winnings and you will be in the highest income earning bracket, so don’t count your hundreds quite yet. A tax professional can be your guide.
According to CNBC, almost a third of all lottery winners end up declaring bankruptcy so it is important to move slow. Use that knowledge of lottery winners to put your new winnings in perspective and don’t make BIG purchases right away. Adding legal counsel to your team of professionals is a good idea as well. This is to help protect you from the ugliness associated with winning the lottery. Mega money can mean mega problems if you don’t assemble a good team of people around you.
You can also choose to take a lump sum up front or take your prize over time which is referred to as an annuity. Some financial advisors believe the annuity is the best option because you cannot blow through your cash quickly. It will be paid out over 30 years. Again, going back to your team of trusted advisors can help you make the decision on whether to take your prize over time or up front.
Don’t make major life changes right away. Keep your job and maintain some sense of normalcy until it all sinks in. It is incredibly easy to start spending major cash on all your most dreamed about items, but be patient. Until you fully understand how all your cash will impact your current lifestyle, it is important to keep calm.
Finally, pay-off your debt. This should be the first major “purchase” you make after winning the lottery. This is honestly the best financial advice, pay-off your debt with a windfall. This allows you to start from zero and make those smart financial decisions going forward. I think this may be the American dream, to be debt free.
If you do win the lottery, CONGRATULATIONS! I hope this helps guide you into smart financial decisions with your money. Tell us, what would you do if you won the lottery?
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