The new American dream seems to be winning the lottery. Making money the old-fashioned way, via hard work and a little bit of luck and good timing, just seems too difficult for most people to accomplish now. The reality is that most people never get a dime out of the lottery versus a lifetime of hard work and responsibility. The thought of becoming filthy rich overnight just by picking random numbers for a buck or two comes with much more excitement.
The Mega Millions lottery has now reached a whopping $260 million annuity value for the June 7, 2016, drawing. The cash value is of course discounted, but that is still a whopping $173 million that can be delivered in a single one-time payment. Whichever payment option is taken, the reality is that this is multi-generational empire money.
What must be understood is that there is a more serious side to the lottery. With instant extreme wealth comes the need for extreme responsibility. Even mega-millionaires and billionaires have to live within some means. The harsh reality of life is that many lottery winners and people who come into unexpected instant wealth end up broke — in some cases it can take a very short time to go broke. It is a lot easier than most people might think to blow through more than $100 million.
24/7 Wall St. has tracked many lottery winnings over the years, and we have come up with a self-help guide of 12 Things Not to Do If You Win the Lottery. Again, it’s just too easy to go broke. The newly wealthy and those who have had wealth for a while need to keep one adage in mind: You should only have to become rich once!
The pitfalls for lottery winners are many, and they go above and beyond deciding whether to take the lump-sum cash payment or take a payout. Most people who win the lottery choose the lump-sum payment rather than getting annual checks.
So what happens if you actually win the lottery? The first thing to remember is that you may be filthy rich, but this comes with the price of extreme responsibility. You now have to consider how this can affect your family and your relationships. Will you work, or will you just live the easy life of luxury for the rest of your days?
A few things have to take place immediately. Winners need to sign the winning lottery ticket and report it to the state. Before bragging to everyone you know, you might want to reconsider. You better go line up a solid financial advisor, and you better get some serious tax advice. Life is about to change drastically, but there are always limits. Thinking that you can live without a budget is a major pitfall. Before thinking that you need to be responsible after becoming filthy rich overnight, ask yourself this: If it is so easy after winning the lottery, then why do some people still go broke?
Some pitfalls will be very hard to avoid. Your family and friends may be asking for money all the time. You do not have to be their personal ATM, nor do you need bankroll all their extravagances. And you better avoid the trap of buying everything you ever wanted.
There are a lot of things to consider on the financial management side. Again, responsibility — and suitability. Ask yourself if you know about alternative investment vehicles outside of stocks and bonds. Have you ever heard of kidnap and ransom insurance? Did you know that your life could now be in jeopardy?
Many lottery winners are not sure how to spend and save, nor how to properly donate. Do you back all your friends and family business ideas? Do you buy everything for everyone, or give extravagant Gatsby parties? These are just some of the things that a lottery winner will have to consider.
The 1980s film “Brewster’s Millions” made it seem hard to blow $30 million in 30 days. Now you could do that in days or hours without even being that creative. The costs of owning and keeping up private jets or mega-yachts, living on a private island and keeping your own entourage add up quick. Mega-mansions, luxury cars, extravagant parties, private concerts, buying luxury goods or art and collectibles — these all sound great, until you factor in the ongoing costs for a lifetime of it. Any combination of those could go over $100 million, again without even being that creative.
24/7 Wall St. does not want to see any lottery winner go broke. Here are the 12 things not to do for any lucky lottery winner. Again, you should only need to get rich once!