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How to Handle Winning the Lottery or Any Financial Windfall

  October 22

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Hey blog peeps!! I am leaving Grenada on Thursday!! For good! Ahhh! So, while I pack up my life, shed a few tears, and settle some things at work, I hope you enjoy two awesome guest posts this week.

This first one is from Sean Bryant who is the personal finance blogger behind One Smart Dollar where he helps his readers increase their net worth one dollar at a time.

Take it away, Sean!

It seems like over the past couple of years we have witnessed some huge lottery jackpots.  For most, if not all of those winners, it’s a life changer. It also means a lot of added responsibility when it comes to their finances.

I don’t know about you, but I have days that I dream about winning the lottery. I suppose I should start playing if I want that to come true. The key for myself or any other winner would be to understand what it takes to handle that kind of money and not to blow it.

I am a pretty down to earth person who doesn’t try and live a flashy lifestyle. I know that my understanding of money would allow me to keep that same mindset, were I to ever win. Yes, I’d pay off my mortgage and likely do the same for family members.   I would treat my wife and daughter to the vacation of their dreams, and then I would invest the rest of my winnings for the future. I would still be the same guy that tries to save a dollar on a Redbox rental by using one of their codes and I’d still be the guy who isn’t afraid to use coupons when shopping for groceries.

The problem is that a lot of past lottery winners are not sure how to handle this financial windfall that has fallen in their lap. I can understand how someone might want to use their winning on a $2 Million gold and jeweled Monopoly board or a diamond encrusted steak knife for $15,000, but there is a good chance you’re going to end up broke.

If you happen to be lucky enough to win the lottery or receive an inheritance, here are a couple of important things you need to consider.

Assess Your Situation

Now that you have come into a little money, the first thing you need to do is sit back and assess what needs to be done. Start by asking yourself a few basic questions. Do you have any outstanding debt? Do you have money put away in a savings account for an emergency?

These are the first things you need to make sure you take care of and make a priority. You need to use the money to pay off all current debts. These debts could be from a credit card, car loan or mortgages that your family has accumulated. Next you need to make sure you have a good amount of cash that is readily available in case of an emergency.

Invest, Invest, Invest

After all of your debts have been paid off, you need to look into investing a good chunk of the money. This will help set you and your family up for the future. What most lottery winners might not understand is that the interest that they can earn off of their winnings is probably going to be more than their salary ever was.

Even if you invest the money into low risk investments, you are still giving yourself a nice amount of passive income each year.

Enjoy Yourself

Now that you have paid off your debts, you’ve done a little investing; it’s time to do something fun. Splurge and go on your dream vacation, upgrade your home or do anything else that will make you happy. Just try and be as practical as possible. You don’t NEED a diamond encrusted steak knife do you?

For a lot of people winning the lottery can be the happiest time of your life. However, that happiness can quickly fade away if you don’t manage this financial windfall properly.

Editor’s Note: Great post, Sean! I once wrote about what I’d do if I won a million dollars. You can check it out here.

What would you do if you won the big bucks?

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28 responses to “How to Handle Winning the Lottery or Any Financial Windfall

  1. There is a show on TLC called “How the lottery changed my life.” There are some good stories, but there are also some really bad ones. One guy was carrying $500,000 in his car at all times, and got robbed several times. His granddaughter got hooked on drugs. Another guy walked away with 70 million dollars cash, and in under 10 years he was broke!

    Scary stuff if you aren’t prepared, or don’t plan out how you are going to handle that kind of windfall.

  2. It’s funny that I have a game plan for what I would do if I won the lottery, but never buy a ticket. Mine looks very similar to yours… but I can’t allow myself to buy a ticket – those odds!

    Here is Canada we have the 649 – where you need to match the 6 numbers of a possible 49… the odds of winning the big prize are roughly 1 in 14 million!

  3. I think my life would still be pretty similar. I would pay off debts and invest the rest. I would enjoy some as well.

    P.S. I didn’t realize that you were leaving so soon!

  4. I think the first decision would be to find help with managing the money. You need to find a reputable person that will help you make a plan for the money. Most people think they can handle managing that much money themselves, but that is usually further from the truth.

  5. Ahem, I do need a diamond encrusted steak knife, okay?
    I think that even with a good plan, it would be really hard to not end up burning through a decent chunk of it right away. Paying off a relative’s mortgage, or your own, for example, would put a solid dent in any winnings. Then, investing it and deciding your withdrawal rate (or date, depending on your approach), would be tricky!

  6. After hearing all the bad things that happen to lottery winners, I’m not so sure I would WANT to win! I don’t know if that’s because the winners just don’t know much about finances, or if it’s just a combination of factors that causes them to end up in bad situations. If I did win the lottery though (or came into a large inheritance – about as likely as happening as the lottery for me!), I know I would invest just about all of it and I’d be like you, Sean: I’d still be hunting for RedBox codes and using coupons! I wouldn’t want to spend my money on things, I’d rather spend it traveling and gaining new experiences.

  7. It’s crazy to see how many lottery winners end up with nothing after only a few years. I wonder if states, who administer this legal form of gambling, ought to also provide some basic asset management services along with the cash.

    The investment advice solves a lot of the problems that lottery winners (or those with just a significant windfall) might face. When in doubt, invest in a low cost diversified index fund. You can always change gears later.

  8. Well, I am crazy enough to consider that I know what to do if I win the lottery and this article gave me some extra ideas. All I have to do now is to start playing the lottery and winning the jackpot. I wish this was the easy part…. :))

  9. Pay off debts will be on top of my list! Next will be savings and whatever is left will be used to enjoy! I think a lot of people do that. Dream of winning the lottery but never actually buy a ticket. LOL!

  10. I’d like to think that if I had the joy of winning the lottery or something similar I would just invest in what I already have and put a lot behind for emergencies. Obviously debt repayment would be a huge focus.

  11. As we’re nearing a windfall (2 years the State will pay some money for me and my baby), we have already planned to save. It’s not a lot of money, but it still something we could ‘wipe out’ easily with careless spending, which we don’t plan on doing 😉

  12. Your tip of “Assess Your Situation” seems like such a simple tip but also one that many lottery winners ignore. I think if you win you really need to take it all in and look at the hard numbers, especially if you plan on unloading some of it to friends and family. Many people have been rich at one point and simply did not keep tabs on things and ended up in bankruptcy. I’m convinced this wouldn’t happen to me if I won the lottery, but the odds of me winning are so small that I don’t think I have to worry about it 😉

  13. If I won a large amount of money, I would make wise decisions with it in order to make it last. I’ve seen and read where too many people who won windfalls squandered it all away. That wouldn’t be me!

  14. I would get a really good financial planner and accountant to handle my money the best way possible. I might even consider not taking a lump sum only because in the end it always seems like that can ensure the money lasts. I also would try to accept the winnings as anonymously as possible!

  15. I would absolutely love to win the lottery! This sounds like a good problem to have. It depends on how much money I won, but I think the first thing I would do would be to go on a vacation, and then invest the rest. Like Tara, I’d love to remain anonymous if I won a large sum.

  16. If I won the lottery I would pay off all debts, mortgages, and create trusts. Then, I would slowly begin purchasing property and become a real estate tycoon. I would move into a bigger place (live in a 495 sq.. foot condo now). And buy a used Jeep. Then, I would volunteer with people in need so that I would remain grateful for what I have.

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