I think everyone has fantasized about winning the lottery. So much of our lives are spent working towards specific financial goals. Everyone wants to pay off debt, buy their dream house, and spend every summer on a tropical beach and every winter on a mountain. Some people want a wardrobe where they can wear different clothes every day of the month, and others want to spend their life on a boat or the beach.
The lottery is one way that we can fast track all of those plans in order to make our dreams come true immediately. Of course, from a financial perspective, the lottery is a poor financial decision.
Chances are, even if you play the lottery every week for the rest of your life, you will never win. Likewise, going to the casino can invoke dreams of massive winnings, but rarely will you leave with more money in your pocket than when you arrived.
That being said, life has its ups and downs. If you bought a winning lottery ticket, or even got lucky at the casino, or if some other massive windfall money comes into your ownership, you should have a plan for how to deal with that money. So here’s three things everyone should do if they come into ownership of a large amount of money.
Don’t Tell Anyone
As tempting as it may be to tell your boss off, take your buddies to the Superbowl, or pay off your parent’s massive mortgage, don’t tell anyone that you won the money. Some areas you’ll have no choice but to declare publicly your winnings, so do what you can to quietly prepare for the incoming money before you claim it. There’s a couple reasons for this.
First and foremost, announcing to the world that you suddenly have a lot of money will bring out every single person you ever met. Forget about ever using Facebook again, you’ll have dozens of messages daily from people you hardly remember wondering what you’re doing with all that cash. I’m sure a bunch of them will be championing noble causes, but just as many will be looking for a quick buck.
The second main reason you don’t want to tell anyone is because people will start to treat you differently. If people are suddenly nice to you, you’ll wonder what ulterior motive they may have. If they are suddenly mean, you’ll think that they’re resenting you. This will ruin your life, your friendships, and your work relationship.
If you want to have some peace and quiet to enjoy your new found wealth, don’t tell anyone. Keep going to work, even if you plan on quitting or moving, don’t make any massive purchases, and take that time to really plan out how you’re going to use the cash.
The vast majority of lottery winners are bankrupt within a couple of years. If you aren’t 100% sure how you’re going to use, spend, and save that influx of cash, hire someone to figure it out for you.
It’s normal and natural to want to take advantage of that cash by going on a trip, paying off the mortgage or other debt, or hiding all that cash under your mattress. These may not be the best ways to take advantage of that income, so ask someone who knows best.
Most likely they will want the entire amount to invest for the future – and that may be the best option. Even if you can get a 3% return on a million dollar investment, you can massively supplement your annual income without any additional work. It’s not quite as glamourous, but it could be the best option. Ask someone who can break down all your financial options and collectively determine what is best.
A second good hire would be a lawyer who will assist you in protecting your assets. Consider it an investment for the money itself. Once you have something worth taking, a year old minor car accident could suddenly become much more serious before you had any assets.
Take 5% of the income and treat yourself, just wait 3 months first to decide what to spend it on. Like I said, it is going to be awfully tempting to use that money on all sorts of things, and you can help battle that feeling by rewarding yourself with a small amount. Take 5% of the cash, put it into your personal banking or chequing account, and spend 3 months figuring out how you’re going to spend it.
You can plan the ultimate trip to Europe, you can spend it all at the mall, it doesn’t really matter. 3 months is long enough that people won’t associate it with any significant event (death of a relative, lottery, that casino trip) so you’re still not breaking rule #1 by spending some cash, and 5% is small enough that it wouldn’t be unreasonable to say that you’ve saved it.
If you wait 3 months, it’ll be even easier to say that you have, in fact, “saved” that money up. Failing to reward yourself can lead to negative behavior. 3 months can seem like a long time, but it is short enough that most people should be able to hold on that long in order to make the most of the situation.
If you have come into a lot of money suddenly, how have you dealt with it?