What Can You Do With Your Sudden Windfall?
Friday April 26, 2019 10:46 am
The Lottery Lab Staff
Winning a sudden windfall in the lottery can be overwhelming. You don’t want to lose it as suddenly as you gained it but you also want to enjoy purchasing things you have always wanted. The key is to make good investments so that you can enjoy the future and at the same time enjoy your present. The extra cash is an opportunity for you to permanently improve your financial situation. Unfortunately, most people fritter away their winnings simply because they don’t have a specific plan to preserve it.
If you are a regular lottery player, then you should be prepared for the good fortune that comes with a winning ticket. Hence, you need to have a specific plan of what to do with your prize. Make your money last longer while having a little extra fun along the way with your newfound money.
Determine your tax implications
First, hire a tax attorney or work with a financial management team to help you out with the tax implications. These professionals will guide you through the decisions to preserve the money you deserve to keep. Talk to your tax attorney and other team members to determine whether or not certain money is exempt from taxes. They can also advise you on how to structure your purchases so avoid tax penalties. They can also show you whether it is best to set aside money to pay taxes over time or pay the taxes immediately.
Consider different payment options
You have two options to get paid while claiming your winnings. Lump sum cash or annuity. Consider the benefits and disadvantages of both payment options before choosing one.
Establish a limited “fun” spending budget
You can burn through your money quickly if you “treat yourself” without some kind of control. One popular option is to compartmentalize a small percentage of your money for “fun” spending. You can still book the whole movie theatre, buy VIP tickets to your favorite football match, go on vacation, or go for a wild shopping spree, but give yourself a limit. Surprisingly budgeting your “fun” spending can make it even more enjoyable because when you know you are within reasonable bounds, you won’t be worrying about how you spend your money. Many lottery winners have admitted spending all their money on “fun” purchases simply because of peer pressure. A limited account for “fun” can help protect against such pressures. This way you can use most of your money to cover other expenses and invest for your future.
Specify a financial plan
Before you make any additional decisions with your wealth, create a financial plan or modify your existing plan. You might have to make some modifications in your goals. Consider what your new goals might be and make the required modifications in your financial plans. Realize that if you want to have money over the long term, you will have to put most of your money toward your long-term financial plan.
Update your estate plan
A large windfall changes the way that people think about what will happen when you pass away. The government generally ignores the assets of “regular people” when they die, but charges taxes if your net worth is high enough (yes, the government actually charges you for dying). Additionally, your family members will have a natural interest in what your will says. Therefore, it is important to have an estate plan in place to ensure that your money is distributed exactly according to your wishes upon your death. If you already have one, update it and revisit it periodically. By doing so, you might realize some significant changes you need to make after receiving a windfall. It is important to have a detailed estate plan so that the wealth distribution process becomes much less upsetting for your grieving beneficiaries as well.
Pay off your debt
In case you have debt payments, use the windfall money to pay off your debts once and for all. However, if you are not fully committed to staying out of the debt then you should invest most of the money. Most banks and credit cards lend you money because of your ability to repay it from income and wages. Once you win millions of dollars, you may be offered loans that are so large that you could never pay simply from your income. Thus, be careful that you don’t simply run your debt back up in a few years because this can lead to bankruptcy. If you want to have a great financial plan, your first step must be to get out of debt. Once you’re out of debt, you will have better investment opportunities.
Create an emergency fund
Once you’re out of your debt, you should consider creating an emergency fund of about 6 months of your income. Be specific about putting this money in a high yield savings account. Make sure that this money is used only for true emergencies such as a job loss or medical emergency. If you take some money out of your emergency funds, try to replenish it with your monthly income. You should plan and save for all expenses and try to avoid taking out money from the emergency funds.
Make business investments
Once you’re done setting up your emergency account, consider investing the rest of the money. You can invest money in mutual funds with good earning track records and lower fees. Such investments can be selected to match your risk tolerance and investment objectives. Find yourself a financial adviser first and then start investing in mutual funds because it tends to spread your risks over several stocks. Financial advisers can help you diversify your investments over a few mutual funds and mutual fund types in order to minimize your risks.
Take care of your financial responsibilities
If you have financial responsibilities for another person, you need to plan ahead for that too. For instance, your parents may have passed away and you have become the guardian of your siblings, therefore, you need to plan for their well-being. You need to ensure that your financial plans are meeting their needs and expenses as well. If your windfall is changing your long-term career plans and education plans, you need to consult a lawyer and set up a trust for that money. It will help you cover future expenses for your charges. A firmly structured trust can help protect the money in a variety of ways, especially if the people you are responsible for are young and not able to make the best choices for their future.