You’ve likely come across stories where someone won the lottery only to become bankrupt a few years later. Indeed, in the U.S., nearly one-third of all lottery winners declare bankruptcy within a few years, according to Wolf Street.
The main cause? Unnecessary lavish spending!
Janite Lee, who won an $18 million jackpot in 1993, for instance, filed for bankruptcy only 8 years later after throwing her money at the Democratic National Committee and, after that, funding the campaigns of several individual candidates. She also lost a further $350,000 to gambling. By 2001, she only had $700 left in her name.
In another case, William “Bud” Post won $16.2 million in the Pennsylvania lottery in 1998 but was $1 million in debt just 12 months later. “It was a total nightmare,” he’s quoted saying of winning that jackpot. “I wish it never happened.”
Be Smart; Don’t Make Obvious Mistakes If You Win
You’ll probably want to accomplish a lot with the money. So, here are 10 things you must avoid at all costs;
- Don’t forget to sign the ticket
Just recently, one Mr. Weirsky, a New Jersey resident, nearly missed out on $273 million after losing his lottery ticket. If the Good Samaritan who found (and returned) the ticket had claimed ownership, the Samaritan would have been declared the winner. Signing your tickets can help in such situations.
- Don’t tell everyone
One of the biggest mistakes lottery winners make is telling everyone about it. Within just a few hours of learning about the winning, everyone in the neighborhood and at least a few hundred friends and family often know about it. Don’t. If you hit the jackpot, don’t tell anyone about it. Otherwise, you’ll lose the money fast.
- Don’t rush to claim the winnings
It’s advisable to wait at least a few weeks before claiming the cash, advises John Loyd, a financial planner in Fort Worth, Texas. Doing nothing about the entire situation for an extended period allows the emotions and excitement to subside, leaving you with a much clearer mind.
- Avoid a one-time cash-out
Taking out a massive amount of money comes with all sorts of problems. You may even become a target for criminals. The best idea is to spread the payments over several years (up to 30 years for big winnings). This way, even if you misspend the one year’s cash out, you’ll still have the next year to look forward to.
- Don’t act like an investment genius
As soon as you hit the jackpot, you’ll have all kinds of investment ideas racing through your head. Even worse, you’ll have dozens of people, including family members, friends, and professionals, coming to you with enticing investment offers. Don’t fall for it. You may need to invest, yes. But it doesn’t have to happen immediately.
- Don’t think that you can help everyone
You may think that with the $100 million jackpot you just won, you can give everyone in your social circle a few thousand. It never works. By the time you’re finished giving the handouts, you’ll be left with nothing. So, although it’s nice to share with others, don’t try giving a handout to everyone who comes along.
- Don’t imagine that you can buy anything
The moment you start believing that you can now purchase any house and several expensive cars and boats – you’re doomed. If you can maintain your previous lifestyle, the better. Alternatively, take out a small amount to “spoil” yourself, then return to normal. You don’t want to get sucked into an expensive lifestyle.
- Don’t attempt to repay all your debts at once
You don’t have to repay the outstanding mortgage, credit card loan, car loan, etc., in a lump sum, just because you won a $10 million jackpot. First, why the rush? You can continue repaying at the normal rate. No one will penalize you. Secondly, why risk going bankrupt? Often, by the time you’re done settling all the debts, you’ll likely be broke!
- Don’t forget about taxes
First off, you’ll need to pay a significant tax on the winnings. But that’s just the start. The items you’re going to buy with the money may leave you with even bigger tax obligations. Properties, especially, could put you in so much debt you could be in debt within a couple of years.
- Don’t underestimate the need for long-term planning
Long-term financial planning is the only solution to all the potential pitfalls when you win the lottery. Whether it’s investing, paying taxes, repaying your loans, protecting your assets, or donating to worthy courses, a sound financial plan will guide you through it all.
Don’t Live to Regret Your Actions
As we’ve already seen, lottery winners go broke quite often for all kinds of reasons. Avoiding the ten things discussed above can help you avoid common pitfalls.