The probability of winning the Powerball jackpot is one in 175,223,510.
Most people realize they’re never going to win the lottery, but many people receive windfalls like inheritances, gifts, or generous bonuses.
Unfortunately, a lot of people who find themselves with a sudden, substantial sum end up with nothing to show for it. In fact, the “lottery curse” is a well-known cautionary tale.
The Lottery Curse
TruTV.com has a sobering slideshow of lottery winners who wound up with nothing. In some cases, lottery winners have lost loved ones, their freedom, or their own lives.
The causes of the “lottery curse” are mostly down to bad financial planning.
Many things lottery winners spend money on are non-refundable (cosmetic surgery), unnecessary (luxury cars and jewelry), or bad investments (like businesses purchased on a whim).
Windfalls can mess with people’s minds, so it’s smart to have a basic plan ready for dealing with windfalls, from the surprise year-end bonus to the Powerball jackpot.
Things to Do After a Windfall
If you win a large lottery jackpot, sign your ticket, make copies, and put the original in a safe deposit box.
In most states you have three months to come forward with your ticket. Beforehand, you need to put together a team of professionals consisting of an attorney (or several), a CPA, and a certified financial planner.
Get a good lawyer first. Many lottery winners get claims out of the blue from, for example, co-workers who say they were in on a “pooled” ticket.
With big lottery winnings, maintain as much anonymity as possible.
In many states, you have to give your name for publicity purposes. If so, get an unlisted phone number, and consider moving to an undisclosed location for a period to avoid the inevitable media crush.
With big jackpots, you have to choose between a lump sum payment and an annuity. This should be a considered decision based on your age and other factors.
With wise investment, you can take the lump sum and do fine. However, there are advantages to taking an annuity (assuming you’re young enough to expect to live 30 years after winning).
Your accountant and financial planner should review both options with you. The main advantage of the annuity is that you can’t blow it all at once, which is surprisingly common.
The following tips apply after any windfall, small or large.
Strive for consistency in daily life. Windfalls bring their own stress, particularly when family members have strong opinions about what to do with it. Try to keep life as normal as possible.
Pay off debts. It is possible to receive $100,000 and still end up with a car payment. Using windfalls to pay down debt buys you freedom, and freedom from debt is one of the most liberating life accomplishments.
Make a budget. That’s right: Figure out how to mete out your windfall.
Sudden cash has a way of burning a hole in people’s pockets, and making a budget helps ensure you’ll have something positive to show for it, whether it’s tangible (a new car to replace your battered 2001 Corolla) or intangible (lack of debt).
Use some of it to make the world a little better. People who win huge sums often set up charitable foundations, but even if your windfall is $500 at Christmas, giving part of it to a well-vetted charity that does work you support is the right thing to do.
You’ll feel good inside, and the charity will definitely appreciate it.
Things Not to Do After Winning the Lottery
• Don’t assume that because you have money, you’re automatically an entrepreneur. An experienced financial planner can help steer you away from harebrained ideas.
• Don’t try to get out of paying taxes. Your CPA and financial planner can help you minimize your tax burden, but you’re going to give some of your winnings to Uncle Sam.
• Don’t adopt a “high roller” lifestyle. This is how lottery winners end up broke despite winning millions.
• Don’t become Santa Claus. Of course you want to be generous, and within reason, you can. But you’re not Oprah, and you shouldn’t buy a new car for everyone in your life.
Finally, don’t be a jerk about it.
Money changes people. It can change people for the better by increasing opportunities, or it can change people for the worse, by turning them into entitled dopes who think they’re better than everyone.
You only set yourself up as the object of major schadenfreude if you adopt this mindset.
Windfalls should never be included in normal budgets because sometimes they don’t happen. But that doesn’t mean you shouldn’t have a basic plan for windfalls, small or large.
Be smart, be humble, and be prudent, and if you find yourself with that winning Powerball ticket, you can use your winnings to better yourself, your family’s life, and the lives of those in need.
Mary Hiers is a personal finance writer who helps people earn more and spend less.