Most people fantasize about winning the lottery and how much easier their life would be with millions of dollars. Unfortunately, the chance of winning the lottery is about one in 14 million and is a dream unrealized for most Americans. However, there are a few tips on how to win the lottery. If you are one of the extremely lucky few who have a winning lottery ticket, there are important steps to take both before turning your ticket in and after cashing out your prizes to help manage your winnings for a lifetime.
Before Turning the Ticket in
1. Make copies of the winning ticket
The first step to take, after learning that you have won the lottery, is to make several copies of your unsigned winning lottery ticket. Take multiple high-quality copies of both the front and back sides of the ticket, and make sure that all texts, numbers, and other information on the ticket copy is easy to read.
Once you have gone over all the legal terms and conditions with your attorney and have decided to sign the ticket (officially claiming the winnings as yours), you need to make copies of the signed lottery ticket, like you did with the unsigned ticket.
2. Securing the winning ticket
After making several high-quality copies of your signed lottery ticket, you need to secure the original ticket. Keep the ticket locked away in a safe, deposit box, or other secure hiding spot. Remember that your lottery ticket is now worth millions of dollars and should be treated as such, much like you would treat a check or deposit slip.
Once you have found a secure spot for your lottery ticket, you will want to lock it away and not take it out until you are ready to cash it in.
Remember, you usually have anywhere from 180 days to 1 full year after the winning ticket’s purchase to claim your reward – meaning you have time to calm down and get your bearings straight before cashing your ticket in.
3. Acquire a team of professionals
With your newfound wealth, the first thing you need to do is hire a team of professionals that specialize in large financial “windfalls” – when you come into a large and unexpected amount of money, suddenly. Your team of professionals need to include an attorney, to help you understand the terms and conditions of your win and their implications; an accountant, to keep track of your retirement plans and investments (mutual and index funds along with real estate plans); and a financial advisor, who will help you allocate your winnings and give budgeting tips to keep your spending on track.
4. Lump sum vs. annuities
One of the most important decisions to make after winning the lottery, is deciding how you want to receive your winnings – and there are two payout options.
- The first payout option is taking your winnings as a one-time payout called a “lump sum”. When you choose the lump sum payout, you will receive the full sum of your winnings after federal and state taxes have been deducted. While federal taxes are always taken out of the winnings, there are 10 states that don’t collect state taxes on lottery prizes: California, Delaware, Florida, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming; along with Puerto Rico and the U.S. Virgin Islands.
- The second payout option is to have your prize awarded through an annuity, a long-term payout plan. Annuities last around 30 years in which you will receive a portion of your winnings periodically (usually every month) from your state’s lottery commission.
As with any decision, each payout has its own unique pros and cons to be considered. Taking your winnings in a lump sum allows you to allocate a large amount of your winnings to investments, such as stock and real estate. Because you are getting the full amount of your winnings (after federal and state taxes have been deducted) in one grand payout, you will also avoid long term tax implications that are present in long-term plans. On the other hand, receiving all of your winnings in one payment is hard to manage and comes with a higher risk of overspending and burning through your money quickly.
There are major perks to putting your winnings in annuities as well; annuities allow the payouts to accumulate interest over time, making your overall payout closer to the reward amount that was advertised. Unfortunately, each annuity is taxed based on both the federal and state’s current tax rate, making the amount of taxes deducted on your winnings inconsistent.
Annuities are also incredibly inflexible, meaning you won’t be able to change your payment terms under any circumstance, including personal emergencies. While they are inopportune for making large investments, annuities do protect from overspending and burning out all of your winnings at once.
In some instances, you are able to sell out your annuities for a discounted cash price, but this is dependent on the state’s lottery regulations.
5. Protect your privacy
The final step to take before turning your ticket in, is to protect your privacy. Once word gets out that you have won millions of dollars, you will be the hottest topic in town and media for a while. To keep from being harassed by the public, change your cellphone number and only give it to those you trust, your immediate family, and other important people in your life.
Additionally, take the time to set up a new email account to help filter out the spam and junk emails. Since some lottery programs require their winners to give their name and make public appearances, it is not a bad idea to change your P.O. Box and mailing address.
After Turning the Lottery Ticket in
What to do once you obtain your money
1. Set a budget and stick to it
Once you have claimed your winnings and have received a lump sum or annuities, talk to your financial advisor for budgeting tips and create a life-long budget plan. You should make separate budgets for each aspect of your life, such as education, mutual funds, index funds, investments, retirement plans, and trust funds.
Alongside the broad budget you’ve created, you should continue to make smaller scale yearly or monthly budgets for necessities like groceries, eating out, medical appointments, and miscellaneous items, much like you did prior to winning the lottery.
As with any budget, try to stick to your outline as much as possible to cut the risk of overspending and losing your millions quickly.
2. Set a part of the winnings aside
As with any income, you will want to put some of your winnings away in a mutual fund or trust fund and allow it to accrue interest over time. Make the money you allocate into the index fund off-limits and refuse to touch it until absolutely necessary.
3. Consider donating to charities and your local community
Always try to send some of your winnings back into the community through local charities or donations. You can even donate to charities outside your community, like the Ronald McDonald Fund or worldwide non-profits such as the Salvation Army.
While you may want to shout your newfound wealth from the rooftops, there are a few steps you should take before announcing your winnings. If you are lucky enough to win the lottery, remember that you don’t have to cash out your ticket right away, you have ample time to get your head wrapped around your new wealth and get the most out of your winnings.