Unfortunately, not everyone is going to win the lottery, but plenty of people keep trying anyway. They have enduring dreams of winning enough money to stop working, take endless vacations, buy big houses and boats and airplanes, take care of mom, dad, and the kids and generally live the good life. However, many winners are not even sure exactly what “the good life” means other than the string of spending. The money appears endless, but it is not.
The odds of winning are certainly stacked against us, making the lucky ones who do win even more fortunate. Are they really? According to the National Endowment for Financial Education, up to 70 percent of lottery winners lose the money completely just a few years after winning. Many of them fall into deep debt; a worse situation than before winning.
How could people who suddenly have more money in their hands than they ever dreamed possible just let it slip through their fingers? Virtually all analysts who understand money management point to a simple fact: people who do not know how to manage money, regardless of the sum, have a poor outlook for ever keeping money working for them rather than being pocket change.
Everyone knows that pocket change is spent change. “Poor” was chosen specifically because their outlook will typically leave them in that monetary condition.
How To Make A Lottery Windfall A Life Win
Let’s presume that you, like many of us, do not know how to manage money. That is a paradigm that must change or all is lost. Literally. The following guidelines will help:
Since your first decision is likely to advise your lottery benefactor whether you want the money in a lump sum or as a structured settlement payment; that is, monthly payments for the duration of the value of your winnings.
For now, take the structured settlement because a lump sum payment will be less than the advertised winnings. You can always change it later.
Buy professional, trustworthy financial planning advice. You have the money, buy the advice; the small investment will be worth the development of a sound financial plan that will keep you solvent with your dreams for life.
Research and Be Prepared
Tell your advisor what you want to do with your money, but be prepared to listen and take some hard advice. You do not want to be in that 70 percentile.
Now, about the structured settlement. If your lottery win was $10 million and you had that arranged in monthly payments for 20 years (240 months), your monthly income would exceed $41,000. You can live on that, and then some. However, since you are going to be dealing with taxes – and you will certainly need your financial advisor for that! – consider a worst case that half of that will go to taxes. Can you live on $20,000 per month? We thought so.
Now, regarding the structured settlement, you can modify it. Let’s say you decide, with your advisor’s approval, that you want to buy the big house in the forest on the lake. You can sell a portion of your structured settlement in a lump-sum payment to cover the down payment, or maybe even the entire purchase price. The rest of your structured settlement remains in place, paying out in its regular monthly payments.
The point is, by managing your lottery winnings in this fashion, you control the money rather than letting it control you by being spent into oblivion. By following your advisor’s recommendations, you should stay out of the 70 percentile that loses it all.