It seems like just about everyone had lotto fever recently, thanks to the first billion dollar jackpot. However, for most of us, those lottery dreams will remain just that: dreams.
You know that it's a long, long, long, long shot for you to win the lottery. The Multi-State Lottery Association reports that the odds of hitting the jackpot are one in 292.2 million. Add another "long" to that shot. Even so, we can dream, right?
US New & World Report's recent article "Lottery Winner or Not, Have a Windfall Plan," says let's have fun with the fantasy that your purchase of a $2 lotto ticket will make you a billionaire by discussing a lottery game plan:
Lottery Game Plan
- Sign your ticket (after making sure your state allows it).
- Place the signed ticket in a safe deposit box.
- See if your state allows you to claim the prize money anonymously (DE, KS, MD, ND, OH, or SC).
- Don't claim the prize immediately. You need to get yourself organized with an attorney, a CPA, and a financial planner.
- Prepare to handle family requests and preemptively let those family members know how this will work.
- Execute your lottery game plan.
It is fun to daydream about lottery winnings, no matter how great the odds.
It's also a good exercise to have a plan in place for how you would handle a financial windfall of any kind. There are, after all, many other ways to receive a big chunk of cash. For example you might receive an inheritance, life insurance proceeds, an insurance settlement, or funds from selling a business or real estate. Even if you never play the lottery and have no real need for that game plan, you still need to know how to deal with more realistic situations. Here are some suggestions:
Create breathing room. Getting an unexpected lump sum is exciting. We can't help but start to dream of the possibilities. But it's best to step back, take a deep breath, and try to avoid making any impulsive decisions.
Figure out your taxes. As you might expect, some windfalls will have a tax impact, and those implications will vary based on the type of asset.
Inventory your desires. That sounds serious! Yes, make a wish list of everything you want to have and do, including education goals, vacations, cars, and homes. When you have it set, put that list away for 30 days to give you a little time to settle down. At that point, common sense and rationale thought may have a better chance of entering into the decision-making process.
Create a debt plan. Pay off your credit cards ASAP. Organize your remaining debt, including mortgages, student loans and auto loans to create a long-term debt plan.
Take five. Spend no more than 5% of the windfall on wish list items in the first six months. There's no reason to hurry with major financial purchases—you've done ok without them, now just wait a little while longer. Keep your impulses and emotions in check and take some time to make wise purchases.
Replenish the reserves. Make sure the windfall will, at the very least, let you build up your emergency cash fund. Set aside enough money to cover living expenses for six to 12 months.
"Snap out of it!" As Cher said to Nicholas Cage in Moonstruck. Each of us will experience a big psychological impact when we receive a financial windfall—the adjustment time will vary. To help address this, take a break from decision making and allow as much time as possible before making major decisions about money or life.
Organize a financial team. Begin by educating yourself on sudden wealth and investing. The more you learn, the better your odds for a successful relationship with your money. Consider hiring a fee-only financial planner, an accountant and an estate planning attorney.
It's fun to daydream about what you might do with a lottery jackpot. But it's even more fun to have a well-thought-out plan in order to be prepared if and when an unexpected financial gain comes your way.
Reference: US New & World Report (January 15, 2016) "Lottery Winner or Not, Have a Windfall Plan"