A windfall can change your life — but without a plan it might not be for the better
A $380 million jackpot. Where’s the problem in that?
Sure the money will change the lives of the Mega Millions lottery winners, but it’s imperative they have a sound financial plan. Failure to map out a strategy for their winnings could lead to misery.
Winning the lottery is one of the more glamorous ways to attain sudden riches. But inheriting money, receiving proceeds from a life insurance policy, or selling a business are far more common ways.
Whatever the circumstances, planning is essential.
The first thing one should do is keep quiet and not get carried away with excitement.
Next it’s important to determine the best immediate use for the money, which usually means paying down debt.
Then it’s a matter of seeing how the money can best be put to work.
If you have adequate retirement savings, it’s acceptable to entertain items on a wish list, such as a vacation home.
But it’s essential to think long term. Any discussions must include proper estate planning. In addition:
Get help It’s wise to invest the time and money required to assemble a team: an attorney, an accountant, and a financial adviser.
Relying on recommendations from family members and friends helps. Organizations such as the National Association of Financial Planners and the National Association of Personal Financial Advisors can also provide referrals.
It’s important to get references and choose someone who’s easy to talk with. It’s also a good idea to make sure they’ve been in business for at least 10 years. Also find out if the adviser was able to minimize client losses during the economic downturn.
Choose wisely One of the first decisions lottery winners must make is whether to receive the prize as a lump sum or over a period of years. The decision needs to be based on plans for the money, tax implications, and other considerations.
Wealth advisers say that, invested properly, the lump sum is probably the best choice. Impulsive spenders might be better off taking annual installments, though, to avoid squandering the newfound wealth.
Take time You may need to take time off from work and spend time to lay the groundwork. Decisions such as setting up a separate bank account for the money and, in the case of a lottery, how to handle all the attention must be made quickly.
David Pitt writes for the Associated Press.