If you won the lottery, would your life change for good? It may seem like an irrelevant question, knowing the odds are against you. But even with a bit of luck, a handful of people can make a fortune.
Then, why make the question? Because it’s not about the winnings, but what to do to keep and grow that money. Most winners end up broke with worse situations than they had before. Why win the lottery to end up like that?
It may be as simple as buying a ticket, but the required work to maintain those funds is a different level.
- How do you organize your funds to minimize taxes?
- How do you get rid of all those people asking you for favors?
- How can you change your life without burning cash on useless luxuries?
Believe it or not, some people wouldn’t quit their jobs even if they won a million dollars.
When it comes to financial intelligence, this advice doesn’t only apply to lottery winners. It doesn’t matter how you choose to make your fortune. When you’re smart about money, you can generate more wealth than in a lottery ticket: as much as you want, whenever you need it.
From here, we assume that you understand the odds of winning the lottery. Make sure to check our guide on lottery scams before continuing.
When you suddenly increase your net worth by a couple million, possibilities may feel overwhelming. Instead, let’s start with what you need to avoid:
- Attention: When too many people know about your good luck, they will try to get some of your fortunes.
- Expenses: Taking the lump sum means spending almost half of your prize on taxes. You can avoid some of them, but it will likely require professional help.
- Financial risks: Although you can live comfortably, there’s no security if your account isn’t growing. Put your dollars to work before you buy a liability.
We’re not talking about small problems. Over 70% of unprepared winners failed because of these. Money won’t solve all your problems!
In fact, there are three things which shouldn’t change:
- Your spending habits. Once you optimize your lifestyle, there’s little to no benefit in making it extravagant or expensive.
- If you created useful financial habits, you should keep them regardless of your success.
- Your asset allocation. If the way you distribute your earnings has helped you grow (tools, education, investing, emergencies), using the same strategy for large amounts will do as well.
If you haven’t set those decisions by the time you win the prize, you will have a hard time keeping numbers green. Here’s a step by step guide to protect and enjoy your lottery prize.
You may not realize it yet, but countless organizations have your contact information already. Anyone can contact you via social media or the phone; some may also know where you live.
If you became famous, your freedom would reduce because of all the protection you need. Is it worth it?
- Wait until the excitement fades
The day you win the lottery, countless people will wonder who the winner is. People will ask for help, and “financial advisors” will start to reach out.
If you wait for a few weeks, there won’t be as many people watching. And besides, you shouldn’t have that money in your pocket until you have a plan. You have plenty of time to think before the expiration date of the ticket.
During that time, remember to sign your winning ticket in case anything happens to it. Put it in a safe (but not too obvious) spot.
When you go claim your winnings, ask to keep anonymous if possible. But don’t think it will help much other than win some time: people may find out anyway.
- Go unlisted
Before you claim the reward, make sure to protect all your contact information. Find out who has your credentials and tell them to opt-out from their list.
If you need to keep your address public, at least change it to a post office box (bills included). No address should point to your real location.
As for contacts, it may be easy to keep your phone in place. You don’t know how many people have your number (more than you think), and the best solution is to delete and start over again. Buy new numbers for every phone in your immediate family.
Talking of relationships, don’t tell anyone who will likely gossip or brag about it (coworkers, kids).
The last one is easy: delete all your social media accounts and email addresses. You can create new ones with minimal contact information.
This step may sound exaggerated, but remember that some people would do anything to get their hands on the prize.
- Only cash out your daily expenses
Unless you plan a big purchase, withdrawing small amounts at once will save a lot of trouble. If you never moved large amounts before, you may be exposed to brokerage expenses you didn’t know that exist.
Hire a financial expert before any big move: paying your debt, investing in a company, buying a car, or a house.
If you want the prize to last many years (including retirement), you may have no choice but to invest. Keeping everything in the case isn’t just unsafe but devalues quickly. You need to invest to avoid losing what you already have.
The only people who should know about your success are those who can help you (and some family members).
Start by hiring a fee-only advisor to act on your best interests (fiduciary). If they have experience managing wealth, they will help you to protect your fortune and invest it.
Now, claiming millions of dollars puts you in the highest tax bracket. It shouldn’t matter since you got the money as a “gift,” but it neither sounds well to give the IRS half of your funds. A tax attorney can minimize your tax liability regardless of the amount you owe. If you don’t want to go through a complex tax preparation process, this is your best choice.
If you want to transfer your wealth with your family legally, ask for a family law attorney. For money management, hire a certified accountant.
Since these professionals get paid for managing money, they don’t necessarily need to know where it came from. If not even your financial team knows about your lottery luck, you know you’re safe.
If there’s someone you need to share your new wealth, it will be your lender. Pay whatever you owe so that the debt doesn’t grow. Make sure there are no penalties for paying early.
If you owed over six figures, it could look suspicious if you paid the sum all of a sudden, especially if you missed your last payments. Instead, pay back a fraction every month.
Ironically, you can now lend the money you don’t use and earn interest from it.
- Update your credit information
A high credit score can give good percentage-based benefits. When moving millions of dollars, it could mean saving five to six figures of expenses.
If you start moving such numbers, your credit utilization rate will skyrocket, impacting about 30% of your score. Increase your limits before making big purchases (opening new credit lines may help too).
Once you have better credit and money, you could qualify for exclusive cards and all of their perks.
- Complete your emergency fund
More money equals more problems. And solving more problems leads to more money. Although we don’t question your abilities, it can be stressful to have so much money at risk.
Investments can fail, a business may go bankrupt, and the lottery branch may not be able to pay you anymore (if you chose the annual prize). No matter what you do, there’s a tiny chance it all goes wrong, which is why having emergency funds is a brilliant idea.
Have six to twelve months of savings in safe storage, and don’t touch it. If you ever face a loss, you’ll be able to still rebuild your wealth fast with this amount.
Imagine how relaxing it is. It doesn’t matter what happens to the economy. You have six to twelve months to make a working financial plan.
- Create passive sources of income
If you’re only spending and earning nothing (retired), you will see your balance reduce every day. How terrifying it feels to know that one day, it will come down to zero?
Luckily, it’s much faster to make more once you have money. For less than 1% of your lottery prize, you can invest in education and start an online business. Or you can open accounts in exchanges and start investing in companies. Or you prefer real estate instead, so you buy and hope properties raise in price soon.
Having money is great. But nothing gives more confidence than making money while you sleep (cash flow).
Share your fortune with others
You may have once said: “When I become successful, I’d like to give back to everyone who helped me achieve it.” Now might be the right time!
Winning the lottery is like receiving money for no reason nor effort. It doesn’t feel yours, even though it sits on your bank account. You may know that money doesn’t buy happiness, but you will be happier if you help the people you love and support causes that matter. Did you know donating has tax benefits as well?
The Bottom Line
We hope this serves for future lottery winners to grow their wealth, or at least to avoid the common mistakes. Even if you don’t hit the millions yet, having the right financial habits will earn you that fortune.