The nation was gripped by lotto fever thanks to the first billion dollar jackpot. But for most of us, those lottery dreams have been dashed. Winning the lottery is never a very likely possibility. The Multi-State Lottery Association says the odds of hitting the jackpot are one in 292.2 million.
Still, there will be plenty of big jackpots to fuel your lotto dreams. Let’s go ahead and satisfy the fantasy of a $2 lotto ticket making you a billionaire by discussing a lottery game plan:
Lottery Game Plan:
1. Sign the ticket (after making sure your state allows it).
2. Put the signed ticket in a safe deposit box.
3. Figure out if your state allows you to claim the prize money anonymously. That means you live in Delaware, Kansas, Maryland, North Dakota, Ohio or South Carolina.
4. Do not claim the prize immediately. You will need to gather a professional team to manage your newfound wealth. You might want to hire an attorney, certified public accountant and financial planner
5. Determine where you want to travel for a few weeks to lay low after you let the world know of your good fortune.
6. Prepare how you will handle family requests and preemptively let those family members know your intentions.
7. Let the world know and execute your lottery game plan.
It is fun to daydream about lottery winnings, even if the chances of winning are incredibly slim. It’s also a good exercise to have a plan for how you would handle a financial windfall, since there are other ways to receive a large lump sum that are much more statistically likely. You could receive an inheritance, life insurance proceeds, an insurance settlement or funds from selling a business or real estate.
We could also deal with coming into a lump sum of money from either an asset sale or through the historic asset transition that will occur as baby boomers inherit the assets of their depression-era parents. The total wealth transition is estimated to be worth $8.4 trillion, according to Center for Retirement Research at Boston College calculations.
Even if you never have a need for the lottery game plan, you still need to know how to deal with more realistic scenarios. Here’s how to prepare for a financial windfall:
Create breathing room for yourself. Receiving an unexpected lump sum is exciting and full of possibilities. However, most of the time you will need to step back, take a deep breath and avoid the danger of making an impulsive decision.
Understand taxes. Some windfalls will have a tax impact, and the implications vary depending on the type of asset. If you don’t take taxes into account, you could end up paying more tax than you need to or face tax penalties later on. Find a certified public accountant and get tax advice to meet immediate tax liabilities.
Inventory your desires. Make a wish list of everything you desire including education goals, vacations, cars and even houses. Once that inventory list is created, lock this list up for thirty days to give you time to settle down. This also lets your mind settle into rational thought to sort through wants and needs.
Create a debt plan. Immediately pay down or pay off high interest rate credit cards. Then organize your remaining debt, including mortgages, student loans and auto loans, to create a long-term debt plan.
Take five limit. Spend no more than 5 percent of the windfall on wish list items in the first six months. There is no reason to hurry with major financial purchases. Control your impulses and emotions and take your time to make thoughtful purchases.
Fill up the reserves. Make sure the windfall has at a minimum helped you build up your emergency cash reserves. Set aside enough money to cover living expenses for six to twelve months.
Pull your head down from the clouds. There is a huge psychological impact when receiving a financial windfall, and the adjustment period can vary for each individual. It’s common to experience elation, fear of losing the money, depression, distrust, lack of confidence, intimidation, a sense of loss, feelings of unworthiness, numbness, confusion and even a desire to give the windfall away (above and beyond normal charitable desires). To soften the psychological impact, try taking a break from decision making. Allow as much time as possible before making major decisions about money or life.
Organize a financial team. Begin by educating yourself. Read books about sudden wealth and investing. The more you learn, the better your prospects are for a successful relationship with your money. When you feel confident enough about your knowledge level, organize a team of advisors. Consider hiring a fee-only financial planner who has a fiduciary obligation to help you choose the best investments for your financial situation. You may also need an accountant and an estate planning attorney. Interview your prospective advisors, and ask questions about their professional credentials, the amount of experience they have and whether they work based on commissions or a set fee. You can locate experienced professionals though the National Association of Personal Financial Advisors, the American Institute of Certified Public Accountants and the American College of Trust and Estate Counsel.
It’s incredibly fun to daydream about what you might do with a lottery jackpot. Some people might say that daydreaming is worth the price of admission. But it’s even more fun to have a well thought out plan so you are prepared when unexpected financial events come your way, via both positive or negative circumstances.
Brian Preston and Bo Hanson are fee-only financial planners who host the podcast, “The Money-Guy Show“.
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Lottery Winner or Not, Have a Windfall Plan originally appeared on usnews.com
