I’m a Financial Planner: Here’s What I’d Do with My Money if I Won the Lottery
Winning the lottery seems like it would be a financial dream. A windfall of money to come and fix all your problems and buy the luxury vacation you’ve always dreamed of. You’ve probably daydreamed at least once about all the splurges you’d make if you were to win the big prize, which can range from thousands to millions if you’re really lucky.
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Not to put the kibosh on your dreams, but there are a few sage pieces of advice for what you should do with the winnings if you were to win the lottery. GOBankingRates spoke to Stephen Kates, a principal financial analyst for Annuity and former wealth advisor, to get the best tips on what to do if you win the lottery.
Keep the Ticket Safe
First things first: make sure your lottery ticket is a winning one, and keep it protected at all times. “Secure the ticket. You don’t want to lose it to a hole in your pocket while you’re taking a walk,” Kates said. You also want to make sure that it’s definitely a winning ticket, so double check the numbers and know the amount of money you should have coming to you.
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Get an Attorney
Receiving a large windfall of money can be a blessing, but it’s a lot to take on at once. Kates recommended getting a professional that can help allocate your money in the ways that will most benefit you. “An attorney can offer guidance and advice on the laws in your state such as whether you can accept the prize anonymously,” Kates said, pointing out that, for example, in Oregon, you cannot accept lottery money anonymously.
Kates said that an attorney can also discuss the necessary steps for creating structures to protect your privacy and shield your wealth from liability such as trusts or LLCs.
Assemble a Team
Now that you’ve come into a large sum of money, you’ll need a group of pros to help you manage it. “After speaking with an attorney, a financial advisor and accountant should be on the short list of your next calls.” People in these professions can help determine how to spend your money and how to stay on top of the taxes associated with it so you can hopefully profit off it for a long time.
“The internet is littered with tragic stories of mismanaged windfalls that ruined people,” Kates said. “You can avoid that fate by taking things slow and being deliberate about how you allocate your winnings. Your new financial advisor can help you define a rules-based approach to your investments.”
Set Aside Accessible Cash
Your extra cash enables you to have money on hand at all times. Kates referred to this as accessible cash. “This will be essentially your checking account and should be limited to 2-3 months of expenses. You should not exceed FDIC-insurance limits ($250,000) and may need to spread this out to multiple banks.”
Create an Emergency Fund
In addition to your accessible cash, Kates said you should have money stashed in case something drastic happens. He recommended having 24 months worth of essential expenses in a safe, semi-liquid portfolio of cash, money markets, and treasury or municipal bonds. “You may also need to spread this out to avoid exceeding FDIC-insurance limits on any bank-held assets.”
Invest
Having extra cash allows you to make investments that can continue to grow over time and even benefit future generations. “[Winnings] may be invested in illiquid investments or simply meant to grow untouched for decades. Some of this money may be a legacy for your heirs or charitable endeavors,” Kates said.
Talk to your financial advisor about how much of your winnings should be put in this bucket to best support your needs. “There are thousands of investments to choose from and choices like which hedge fund to own should not have to be on your radar,” Kates said.
Find a Therapist
Your new “team” won’t just be financial professionals. Kates recommended getting a therapist if you don’t already have one to navigate this huge lifestyle change. “It is not always rainbows and butterflies to feel your life turned upside down. People will treat you differently, and many people can feel guilt or shame about their situation after a large windfall.” A therapist can help you cope with some of the changes that are going to come with your new cash that you might not have even thought about. It’s good to have some guidance during this time so you’re not doing anything with the money you might regret later due to emotional decision making.
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This article originally appeared on GOBankingRates.com: I’m a Financial Planner: Here’s What I’d Do with My Money if I Won the Lottery
