Jackpot or lottery winnings? You’re not rich, at least not right away.

When we think of lottery winners, we think of large multimillion dollar jackpots. Winners who make the news to claim their fifteen minutes of fame. But even smaller winnings can create substantial opportunities, or unforeseen headaches. New fortunes can also come in the form of local sweepstakes, game show winnings or even a lucky find at a garage sale which proves to be worth tens of thousands of dollars at the next Antique Road Show.

Unexpected money can bring instant (albeit temporary) bliss. Brightening up the lucky winner’s day, week or month. Even a small scratch ticket win is enough to turn a bad day into a good one. Even when people just participate in a sweepstakes, they may daydream about what they will do with their big win.


Yet, winnings come with consequences. We have heard plenty of stories of jackpot winners ending up in ruins, or with damaged lives. Family and friends may come out of the woodwork to take advantage of new wealth. Winners may miscalculate exactly how much this money is actually worth, assuming they now can afford a lifestyle that they actually cannot. We would not just assume we could handle a company if we were unexpectedly thrown into the role of CEO. Yet, people rarely devise a personal business plan to incorporate new funds into their life.


What should you do with new money? Before you try to change your life, focus on making your current life better.


The best way to improve your financial position is to increase cash flow and savings power. Your debts are the first thing that should be examined. Depending on interest rates, consider what debts are taking up a large portion of your income. These items likely should be addressed first.


Don’t forget taxes. Uncle Sam is going to want a portion of your winnings, so you should take care of that quickly using quarterly estimate tax payments. Overestimate rather than underestimate your tax bill. The worst result would be a receive a large tax bill after absorbing your funds into your lifestyle.


You still need to consider the future. If you haven’t been max funding retirement accounts, education accounts or other long-term goals, this is an ideal time to consider doing so. Get the funds out of the current financial picture and into tax advantaged positions. Your future self will be very thankful.


Don’t get used to the funds. It’s ok to plan a celebratory vacation or personal purchase (within reason), but there is a benefit to taking some time before you make any purchasing decisions. Depending on the size of the windfall, you should consider doing absolutely nothing with the money for a period, in order to avoid letting the initial jubilation encourage poor decisions.


You also need to be willing to tell people ‘no’ when they ask for help or handouts. It will be hard, but you need to take care of yourself first, so the money will last and you can help more people later. This does not mean that you can’t help close friends and family with urgent money issues (e.g. health expenses), but it would be prudent to wait at least a year before you consider an investment opportunity from a long lost cousin.


Success is luck plus preparation. And it doesn’t hurt if your luck happens to be a large portion of the equation. As long as you don’t forget about the preparation.

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