Winning the lottery can be an amazing feat, yet can quickly lead to financial disaster. Setting spending guidelines before spending can help protect you from losing all your fortune.
When winning the lotto, your first step should be to keep it secret. Only reveal it after receiving your money; doing this may protect against people seeking to exploit or take advantage of your good fortune.
Next, hire a team of experts to oversee your winnings, such as an accountant, lawyer and financial advisor. When possible, contact these individuals before publicly announcing your victory; their expertise can assist with budgeting and projections for things such as retirement. They’ll also be able to advise whether it would be better for you to opt for a lump sum payout or an annuity, which provides payments over 30 years.
Consider also your tax implications when making decisions. Depending on the size and complexity of your prize money, and applicable state laws, this could put you into an extremely high federal tax bracket. To mitigate this possibility, work with an advisor on developing an investment plan for prize money which will reduce its taxable income over time.
Most states permit lottery winners to choose between a lump sum payout or an annuity payment that spreads out their prize over 30 installments. An annuity may be more suitable for some, though there may be downsides such as filing annual tax returns and increasing taxes by up to 5% each year; also an annuity payment could stop upon death and become part of your estate.
Farnoosh Torabi, personal finance author and host of the So Money podcast advises considering where you should invest your winnings when considering where to put them. She suggests diversifying investments so if one sector of the market declines unexpectedly, others could possibly flourish to compensate.
Consider real estate as an investment option too; renting out or using as vacation housing can provide passive income streams that you could put to use immediately. Just be sure that when making any decisions involving real estate purchases that they involve qualified real estate brokers who will ensure that the purchase is safe.
Staying healthy and having an effective support network are also paramount to managing wealth responsibly. Some lottery winners have reported feeling stressed out from handling their newfound fortune, leading them to neglect sleep, eating right and exercise as essential elements in maintaining optimal health. It’s best to get enough rest, follow an exercise routine, maintain positive attitudes toward life and seek therapy as necessary; finally avoid alcohol and drugs which could become addictive.