With the recent uptick in large lottery payouts, the question of how one might spend such vast winnings has been a hot topic of conversation lately. Below is what we like to call a rational daydream–aka, how one might go about life after winning the lottery if they eschewed the ice cream truck made out of diamonds and wanted to be smart about their winnings:
Step One: Understand What You Are Winning Exactly
The different lottery branches pay themselves out in different ways, and a full lottery lump sum payout is not typical. For example, Megamillions pays out one big chunk of cash immediately and then follows up with an annuity payout, or a payment once a year, for 29 years after that. (Each annuity is bigger by 5%). The Powerball payout structure is similar except that the annuity lasts for 30 years and the rate of increase each year varies. Understanding the annuity settlement structure of your lottery payments is vital if you want to get serious about planning your financial future, which brings us to step two.
Step Two: Hire A Financial Manager
Chances are you have little to no experience in dealing with this volume of income. As you probably know from trying to balance your check book, juggle your loan payments, and decode your credit card statement every month, money stuff can be difficult to understand, and the more money you have, the harder it’s going to be. For this reason it is VERY important that you hire a good finance company to manage your lottery winnings, preferably one that has experience with structured settlements and lottery annuity.
A good finance firm can help you decide whether or not it’s more feasible to stick with the annuity or negotiate for a lottery lump sum payout for example. The decision to stick with smaller portions of money over time or go for the lottery lump sum payout via selling an annuity settlement is a very important one and involves many factors. These factors include the tax rate in your state, federal tax policy projections, whether you plan on investing, and whether or not you have immediate need of a lot of money. Speaking of…
Step Three: Pay Off Your Debts
Once you’ve got financial advisers you can trust and a predictable stream of lottery income, it’s a very good idea to pay off any and all debts you might have accrued in your old life. Whether it’s a car payment, a mortgage, medical bills, or college loans, getting these out of the way will help build your credit and leave you with a clean financial slate. Paying off your debts and budgeting in Uncle Sam’s piece of your lotto winning pie early will also help you understand how much money you are really left with at the end of the day, which is the most important bit of information to proceed with step four…
Step Four: Build An Investment Or Business Plan
You’ve been given an incredible gift, but no matter how much you won, the dough’s not going to last forever. Using a good portion of your winnings on the stock market or to build a sustainable business however can make you flush for generations! What you invest in or build though is entirely up to you and your trusted advisers.
Please comment below if any of this was materially useful–we would love to talk to a real lottery winner!