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How to Manage Lottery Winnings

I have always wondered what I could do with the money if I were to win a lottery. I fear vultures descending on me with their litany of financial burdens for me to solve. Without smart money habits, I could easily turn out to be my own worst enemy if I were to squander all the winnings. However, with the following tips, I can be able to avoid some glaring risks.

Retaining anonymity

The moment people hear of my windfall, I expect to be badgered by requests for financial assistance from relatives, to long-lost friends and charities. Still, I will be under the radar of financial experts who would be competing to give me business proposals and plans. Therefore, the easiest way to dodge all of them is to remain anonymous. Usually, as a prize winner, I have between 180 days and a year to claim my prize, although this may vary from state to state.

Seek tax advice

Normally, winners have two choices to claim the prize money. If I win, I can either take all the money at once or claim it in 30 installments paid over 29 years as an annuity. If I choose to claim the prize as a lump sum, then I’m obligated to pay tax on the full amount. However, with installments, I will only pay tax when I receive the money as an annuity.

There is a drawback in claiming the prize in installments. Taking the lumpsum, remitting taxes, and investing the net amount may be a better idea than the effective yield of the annuity. Still, claiming the wins as an annuity may leave my family cash-strapped and unable to pay estate tax should I die before the 30-year period elapses. I may thus have to Buy Indexed Universal Life Insurance, or a similar life insurance policy, to cover the estate tax bill.

Maintain the same lifestyle

Experts advise lottery winners to retain the same lifestyle for the first six months, avoiding drastic decisions, staying in the same job, not buying luxury cars, among others. Except for some splurges here and there, any big purchases will come later. For instance, instead of buying a house in the neighborhood that I have always desired to live in, I could start by renting, then commit later.

Clear any outstanding debts

From multiple reviews on financial management, I agree that one of the best investments is to pay off my debts. Regardless of the type of debt, whether it is a mortgage or a credit card debt, my rate of return is equivalent to the interest rate on the loan. This is particularly true considering today’s endless yields on relatively secure investments like Treasury and CDs. Paying down a dollar of debt frees me up, although when I invest a dollar, I’m never sure if it will appreciate or depreciate.

Investing wisely

Based on the recommendations from experts, if I win a lottery, I will put my money in safe and short-term investments and resist the urge to touch them during the first six months. Thereafter, I will implore my financial advisors/a wealth advisor to create an investment portfolio divided half-half into fixed incomes such as bonds and equities like stocks. While doing this, I will be keen to avoid any investment that I don’t understand. That said, besides asking for help from wealth advisors, some people often seek the assistance of investment apps like Personal Capital to manage their investments. Personal Capital can allow individuals to explore their entire portfolio visually, regardless of where they hold their investments. Moreover, people might find this app valuable for managing their overall asset allocation. Those interested can consider checking out the Personal Capital Review for more information.

Hire financial and legal advisers

With publicized lottery money, it may be difficult to know which legal and financial expert means good for me, and who is on a mission to extort me. Rather than seeking the services of a group or firm, I will select a lawyer, an investment advisor, wealth managers, and an accountant separately and ask them to work together to manage my new-found wealth.