Strategizing for a potential lottery win is an interesting concept. On the one hand, it’s something that will prove unnecessary for almost everyone on Earth. There’s a lot of crazy things that are more likely to happen to you than winning the lottery, such as dying by vending machine, becoming an Olympic gold medalist, or being attacked by a shark. On the other hand however, someone has to win the lottery, and at least judging by the news articles that arise when people do, a lot of those people are wholly unwrapped to handle their sudden riches. And that’s ultimately why it’s a good idea to at least have an article or two, like this one, in your back pocket in the unlikely event this ever happens to you.
Take The Lump Sum
Perhaps the biggest debate about lottery winnings is - when there’s a choice - whether to take a lump sum or take a lifetime series of installments. A lot of people naturally lean toward the latter. The idea of turning a major lottery win into what’s effectively a very rich salary for either a set number of years or the rest of your life is extremely appealing. It feels like security, and none other than billionaire investor Mark Cuban has suggested it’s the wise course of action largely so that you don’t blow the lump sum too quickly.
Others counter that Cuban is dead wrong in this regard however, for two reasons. One is that with the lump sum you can hire financial planners (more on that in a moment) to structure the winnings in the most strategic possible way for long-term growth and current stability. The other is that unless it’s specifically expressed that your payouts will be adjusted according to inflation, installments will almost automatically lose value ($5,000 a month today won’t be the same in 20 years, for instance). So, provided you’re prepared to be disciplined about it, take the lump sum.
Assemble A Team
This is probably the most important single thing to do if you ever win the lottery. Attempting to manage a sudden influx of riches on your own is a fool’s errand, even if you’re perfectly financially literate or have some investing experience. You’ll need professionals who can help you to budget, plan for the future, invest strategically, and generally manage your new wealth. This is important enough that you should start making phone calls and inquiring about different people who might help advise you within days of winning the lottery. Any longer, and you’re risking that you’ll begin handling the money recklessly and get used to the freedom to do so.
Keep Your Job
At least in the early going, keep your job. Most of us have probably had some version of the fantasy of finding out we’ve made a ton of unexpected money and then dramatically storming out of the office. It’s an amusing thought, and maybe even a deeply satisfying one, but it’s essentially another reckless decision that gets you off on the wrong foot.
Now, if after some planning and setup you decide you’d like to leave your job in a more sensible fashion, by all means have at it. It’s still generally recommended that you keep some sort of job, because otherwise you’ll have too much free time to play with your money and deplete your bank account. But with some strategy employed and a little bit of patience in the early days, you can at least leave your current job for something you’re more passionate about, or even for a personal venture of some kind.
Limit Your Toy To A Certain Range
Let’s be honest: tell you not to buy a toy is probably not going to change anything. If you suddenly have $100 million or more to your name, you’re going to buy something just for fun. And a lot of the examples we tend to see for ideas for this sort of toy are extreme. People talk about buying their own airplanes, buying small islands, buying gigantic mansions, and other things of this nature.
We’re not suggesting you can’t have a toy - but keep it in a certain range. We saw one list of ridiculous items you could buy with a jackpot payout, and it’s actually a fairly appropriate summary. A beach hut, a gigantic 4K widescreen TV, and a super expensive drone are among the ideas listed there. Some of these options can still cost tens of thousands of dollars - hundreds, in the case of a beach hut - and yet they’re not depleting your new winnings by the millions. The thinking here is that you can get the spending out of your system with one extravagant gift so long as it’s not completely unreasonable.
This one is very simple: do not invest on your own, even if you have experience doing so. You’re simply too close to this money to make objective strategic decisions about how to store or grow it for the future. Referring back to the idea of building a team to handle your finances, you should have others to advise you and invest a certain amount of the money for you.
This too is something you should take up with your financial team. But it doesn’t hurt to follow the same basic advice we give young people exploring personal finance for the first time: eliminate debts as quickly as possible. Debt accumulates via interest such that the longer you wait to pay it off, the more you’ll wind up having to pay. But if you suddenly have more money than you know what to do with, you can almost certainly afford to wipe all of your debts clear before they have a chance to grow upon themselves. In fact, you should probably treat your winnings, from day one, as whatever amount you earned after taxes subtracted by whatever amount you may owe in total debt. That is your new starting point.