Winning the lottery can be an exhilarating and life-changing experience, but with newfound wealth comes newfound responsibility. And once they win, most winners are left to figure out what to do with their newfound windfall. The allure of the finer things in life is hard to resist, but wise decisions in how you spend your money can help your fortune last. Here are some clever ways to use your lottery haul to ensure financial stability — and find long-term happiness.
You may think that one of the first things you should do with your lottery winnings is to pay off any debts. This covers mortgages, car loans, credit card balances and student loans. The good thing about eliminating debt is that not only do you repay it, but you also get rid of interest payments, making this move positive for your overall financial situation. The last thing you need is the constant worry of debts, as achieving financial independence means being free to focus on the things that matter to you with your money alive and well.
Life can be unpredictable, so having some kind of safety net for yourself to fall back on in the event of an unexpected outlay (a new medical bill, a broken boiler, a job loss) can help you out. Be sure to have at least six months’ worth of living expenses in a high-yield savings account that’s accessible to you. With issues to cause challenges down the road, you would have confidence to meet the next unexpected challenge with this fund, without the need to dip into your fortune or become indebted.
A big strategy in growing your wealth in the long run is to invest some of your winnings. Investing: When you invest, you put your money to work in stocks, bonds, mutual funds, real estate, or other investment vehicles to earn a return. Working with a reputable financial advisor to achieve a diversified investment portfolio that matches your risk tolerance and financial goals is important.
Third, you should make any major purchases after considering your long-term financial goals. Buy a new home, start a business, go around the world? Are you saving for retirement or your children’s education? By having clear goals, you will better understand how to prioritize your spending and how your lottery winnings can actually bring you long-term satisfaction and happiness.
Some new lottery winners take joy in giving back to their hometowns or to causes and charitable organizations they care about. This might come down to donating some of your winnings to charities, non-profit organizations or local community projects. Giving not only allows you to make a positive difference, but can also offer tax advantages. Have a structured and strategic way of managing your giving such as a charitable foundation or donor-advised fund.
Depending on your state, you’ll likely pay taxes on lottery winnings, and it’s important to plan for it. In the United States, the federal tax on lottery winnings can be as much as 37%, and many states also have their own taxes. If you are going to spend any of your winnings, speak with a tax professional first to understand your tax obligations and put aside enough money to cover them. Proper tax planning can help you avoid any nasty surprises and maximize your after-tax wealth.
But after that, don’t forget to enjoy yourself! It is completely normal to treat yourself to a few indulgences or experiences which makes you happy in your life (whether you get your dream vacation or a new car or a special gift for a loved one). The trick is to find a happy medium between treating yourself and being financially responsible. Establish a budget for discretionary spending to enjoy your winnings without harming your long-term financial security.
More wealth, more need for protection. Buy insurance to protect your assets, like homeowner’s insurance, auto insurance, and life insurance. You may also look into umbrella insurance for even more liability coverage. [Also read: Estate planning: Why and how you should do it now] Partner with an estate planning attorney to draft or update your will, set up trusts and name beneficiaries.
Maureen Kelly, the founder of popular beauty brand Tarte Cosmetics, shares advice and tips on how to manage the sudden influx of cash. Find a team of trusted professionals, such as a financial advisor, tax professional and lawyer who you trust to surround yourself with. Wealth management is a complex field, and these professionals can help you navigate that by making informed decisions and protecting your best interests.
Fortune may purchase many things, but not health. Do invest it in a healthy lifestyle to upgrade the quality of your life. This might mean stepping up your diet, purchasing exercise equipment or making space for relaxation and mental health. More than any material possession, your physical and mental health should be your top priority within your life, and will allow you to enjoy your wealth for years to come.
Winning the lottery gives you a once-in-a-lifetime opportunity to set you up financially and live the life you’ve always wanted. With wise choices for what to do with your money you can guarantee that your blessing brings you permission for joy and long term security. Be mindful of debts, strategic about investing, ahead of the taxman, and getting good advice. Your winnings can greatly impact your life and the lives of those around you — but only if you plan wisely and spend responsibly!
