You’ve Won the Lottery – Now What? – You Need Financial Planning

So You’ve Won The Lottery – What Are You Going To Do With It? You Need Financial Planning

You've won the lottery, now what?We’ve all seen those movies where an attorney calls or sends a certified letter saying that some distant relative, twice removed, has passed away, and left you several million dollars. When the shock subsides and you stop shaking, you begin to wonder what you can do with this new found wealth. Financial planning usually isn’t at the top of the list.

Stories such as this aren’t that far fetched or as rare as we think. It does happen, practically on a daily basis to some degree, and the new found wealth usually disappears very quickly if the individual doesn’t seek proper financial planning.

Unfortunately, this seems to be more prevalent with lottery winners. A few years ago, I knew of one who won an out of state lottery and took a lump sum for several million dollars. After paying the federal and two states income taxes, he started the spending. He bought new Mercedes for the family and relatives, and three new expensive homes. He even went so far as to hire his niece who was in college, to walk behind him with a tape recorder to make notes of any ideas that popped into his mind.

Granted, this is an extreme example, but a true one, unfortunately. I believe this man’s money was gone in about a year, after many friends and relatives needed loans. If you came into an inheritance or some other large sum of money, what would you do? What do you think you should do? You really need good financial planning

Experienced financial planners say that you shouldn’t make any changes in your lifestyle for one year. A study of lottery winners has shown that they dash out and buy the usual expensive toys…sports cars, mansions, and even yachts. After that, motorcycles and jet skis are popular, and practically anything that goes fast or flies high.

Those in the financial planning field say that you should place these funds in an interest bearing time deposit. Then, even though taxes may have been withheld by the issuer of your check, you may still owe additional taxes. Meet with an accountant and calculate your federal and state (s) tax liability for the year, including all of your regular income and deductions. If you still have a balance due, you may be required to pay estimated taxes, but your accountant will advise you of this. Otherwise, set that amount aside to be paid with your tax returns.

Proper financial planning would also recommend that you repay debt such as credit cards as soon as you can. I can’t envision credit card interest rates now that have a low rate of interest. Mortgages with a low rate of interest can wait until you speak with a financial planner who will review your complete plan and make suggestions.

The next thing that you should do is to seek professional financial planning advice. This generally means a CFP (certified financial planner). You need to be aware that there are basically two types of financial planners, fee paid and commission paid. The fee paid planner will charge an hourly rate and the commission based planner will only get paid when you purchase securities or insurance products through him/her. Some advisers say that you should only consult with a fee paid planner, but I personally know a commissioned gentleman that I have complete trust and faith in that I would go to.

You have to use some common sense in this matter however. If your windfall is only a few thousand dollars, there’s not much point in paying for a financial plan.

At your first meeting with a financial planner, he/she will ask you for a complete listing of your assets and liabilities as well as the approximate values of each. They will also ask you what your short and long term goals are, as well risk tolerance in investing in various types of securities. Your retirement plans will also be discussed as well as your current lifestyle and future desires.

After a short period of time, the financial planner will have a formal financial plan all printed out for you, and will review it to be sure that all of your goals are being achieved. After that is done, you can begin to enjoy life. Take a part of the windfall and treat your family to a nice vacation or perhaps a new car that’s been on your wish list.

The primary emphasis is don’t go out and buy every shiny new item that you see. Plan and take care of your family’s financial future above all.

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Damian
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Damian

Most of us aren’t accustomed to planning our finances for the long run, let alone an unanticipated fortune. I’ve seen people splurging away their assets without any planning, and sadly most of them only live to regret in time.

Bard
Guest
Bard

My colleague’s parent recently passed away, and he unexpectedly acquired a heck of a fortune that he never even knew his parent owned. He has been exploring ways to invest it, and has been seeking advices from a few financial advisors. Fortunately, he seeked help, otherwise he may have lost more than half of it in the stock market.

ed pierce
Guest
ed pierce

I have always had big ideas when it came to winning the lottery but then I watched a couple of tv shows where the money really messed up people’s lives and that changed my perspective. Don’t get me wrong, I would still love to win the lottery, but as you stated in the post, you have to be very cautious.

Lisa
Guest
Lisa

I had a neighbor who had won the lottery… they moved down the street from me, into one of the biggest houses in our pretty affluent neighborhood. Come to find out, they had spent *every dime* of their winnings on that house alone, and went bankrupt soon after. There’s simply no hope for some people, it’s a shame to be so stupid! I know there are people out there that could have used that money and been set for life with better planning, and instead those fools are right back where they started.

Jonathan
Guest
Jonathan

Just hope I win the lottery and take advantage of this advice. Odds are people that play the lottery probably need it worse than most

Mandy Allen
Guest

It’s just a dream for most of us but we hold on to the hope that we might win big one day. I think you are very wise to recommend consulting with a financial planner. There are so many stories of big wins that disappeared very quickly. Waiting a year to spend the money is a good idea too. Even in a moderate interest account the capital will increase vastly in one year.

Mandy

Ruth Martin
Guest

Winning the lottery would be the last thing that I would ever want to have happen to me! I know many people would disagree, but I have heard too many unfortunate stories of what happened to those who won the lottery. However, if someone were to unexpectedly leave me with a large sum in their will, etc. I agree that it should be set aside, invested wisely, start up a retirement fund with it, etc. It should not all be spent on hugely expensive extras!

Pam Simpson
Guest
Pam Simpson

I found your post interesting, informative and humorous. Now know what to do, all I have to do is win the lottery 😉

Seriously though, I agree 100% with the need to do long term financial planning whether dealing with a windfall like a lottery win, or saving a percentage of your paycheck.

Ryan
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Ryan

I don’t think I’ll ever have this problem but it is a fun thought experiment to think about what you would or should do. The downside I saw from a personal story of someone who’s parents won the lottery and while they were frugal with the money, it kind of their adult kids not needing to grow up, so they never did.

Brandy Oliver
Guest

Well, I do have to win the lottery as well, lol! I don’t even play it, with the exception of a few of us going in on those giant lotteries at work. But, I do get the urge to grab some Powerball tickets on my own, I mean, hey, you never know, right? If I ever came into any kind of large amount of money, I have always said I would pay off all of my debt, make sure my children have college money and a home, same would go for my mom, and siblings and then my husband’s family.… Read more »

Bobby Hedrick
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Bobby Hedrick

I hear of way too many people that do just what you said and spend all of their money instead of investing it. I would probably invest a majority of it but I would probably also start my business that i have been wanting to start for a long time and this would be another investment and hopefully one for the long term. A financial adviser is always a smart idea and so are attorneys. You never want to splurge without finding out all the legalities of it such as taxes that you might owe.

Kathleen
Guest

I have daydreamed about just this happening, I bet most of us have. I would first and foremost tithe at LEAST 10% of the money to charity and spread it about. I would hire a financial planner to make sure I had enough money to live on even if I live to 101. I would give money to my parents and set amount aside for my son. I would use a financial adviser to help me get my short term wants(an audi lol), modernize my house it’s 100 years old everything down to a house remote control. I would work… Read more »

Paul
Guest

I suppose it makes sense for anyone who wins more money than they know what to do with to seek financial advice. It’s true that many lottery winners have won scooped a huge amount but ended up with nothing a few years later. I would still like to win though……

Wills
Guest

Excellent way you mentioned how to make proper use of money. Its very much helpful blog and also applicable to common person also.