Many people dream of winning it big when they play the odds. The lottery, gambling, game shows, and contests can pay out big if you’re lucky. Although you may daydream about all of the items you can buy with your sudden cashflow, there are many more responsible things you can do to maximize your income. Here are four smart things to do with your winnings.
Meet With a Financial Advisor
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Before making any financial decisions, meet with an experienced financial advisor who specializes in wealth management. They can help you plan different ways to allocate your funds, such as investing, paying off debt, and saving. A financial advisor can also explain any foreseeable challenges you may experience after suddenly increasing your net worth.
Spend Winnings on Necessities First
When you win it big, it may be enticing to upgrade your lifestyle. Before spending your winnings on a newer car or larger house, pay off any bills or debts you currently have. Make a list of all the money you owe, such as medical bills, mortgages, car payments, credit card debt, and student loan debt. By paying all these off, you can start fresh and improve your credit score. Being debt-free can give you a new sense of freedom and make your winnings go further since you’re no longer paying high interest rates.
Create an Emergency Fund
Once you pay off all of your debts, set aside a portion of your winnings for a rainy day fund. Having an emergency fund can help you cover things such as sudden medical bills, natural disasters, and car accident damage. This safety net is especially important if you have a family, so you all can live comfortably even if an emergency were to occur. When choosing how much to set aside, you need to consider your regular budget and then add some cushioning.
Choose An Annuity Payout
When you win the lottery, you can usually choose between a lump sum or an annuity payout. A lump-sum payout is when you get your entire amount of winnings at once. An annuity payout is when you receive set increments of your annuity over a long period of time.
One major advantage of the annuity option is that you could potentially pay fewer taxes on your winnings since you could qualify for a lower tax bracket. It’s also a way to force yourself to budget your earnings. If you ever decide you need to sell your annuity payments, there are companies that can purchase them and give you money right away. This is beneficial if you need to pay debts or medical bills. You may also want to sell your annuity to pay for a major life event such as a divorce or death in the family.
Whether you won money through the lottery, gambling, game shows, or contests, there are many financially savvy things to do with your winnings. By planning ahead rather than instantly spending your earnings, you can enjoy your sudden wealth for many years to come.