Dreams of winning the lottery often focus on early retirement, island vacations and massive spending sprees. While allowing your mind to wander as you create a spending wish list is good and innocent fun, it is also why some real-life lottery winners eventually lose it all. When you win the lottery – even if it’s only in your mind – reinvent your dreams. Take care of business, spend some and then following the adage that money cannot buy you happiness at least allow it to secure your financial future.
Gather a Team of Advisors
Establish a cooling-off period of about 90 days, and during this time create a team of neutral professionals to provide guidance as you prepare to spend your winnings. Your team should include a financial planner and legal, tax and investment professionals. Start with your tax professional and find out how much money you can realistically expect to receive. The IRS and, if applicable, your state department of revenue is going to be ready and waiting to help you spend a large percentage of your winnings by handing you a hefty tax bill. If you have any legal judgments, liens or a past-due tax bill, prepare to see these come off the top, further reducing your overall winnings.
Create a Plan
Work with the financial planning and investment members of your team to help you see past a bevy of immediate and robust spending dreams and set the stage for a successful financial future. If you have a choice, decide together whether you should receive lottery winnings in a lump-sum or as a series of annual payments. Set long-term financial goals, determine how much income you require each year, and create an investment strategy to ensure that these goals become your new reality. Finish planning tasks by executing a will if you do not already have one.
Organize Your Spending
Pay off all existing debts before spending any of your winnings. Set up two tiers of spending: one to satisfy your urge to go on a spending spree and one that involves careful thought and planning. Set aside a percentage -- for example, 5 percent of your lottery winnings -- and dedicate this as “fun” money to spend on anything you choose. Use it to take a vacation, buy a new television or buy and fill up a brand-new freezer. Refer to your financial plan and long-term goals before deciding how and when you spend the remainder of your money.
Donate to Charity
Spread your new-found wealth by donating a portion of your lottery winnings to charity, but first investigate the tax consequences of making donations, which aren't always favorable. Avoid a potential tax bill by working with your tax professional to determine how and when to donate money. If you plan to spread the wealth among members of your family, protect yourself from a bevy of requests by taking a logical, legal approach to distributing money. Make a list of family and/or friends you want to receive money, and work with your advisement team to determine the best way to distribute money while protecting yourself and your own financial future.
Based in Green Bay, Wisc., Jackie Lohrey has been writing professionally since 2009. In addition to writing web content and training manuals for small business clients and nonprofit organizations, including ERA Realtors and the Bay Area Humane Society, Lohrey also works as a finance data analyst for a global business outsourcing company.