Wouldn’t you love to win the lottery? Many people would…and many people try. Unfortunately winning the lottery doesn’t mean you’re financially set for life, even if you win tens of millions. This article is a nice reminder of that fact.
There are so many cases of people winning large sums in the lottery and ending up worse off than they began, because they don’t know how to manage the money. The irony is that most people who understand how to manage their money and what makes a good investment are more likely to “spend” their money on investments that are designed to reward investors. The lottery isn’t designed this way. Only a few “lucky” people will win.
Unfortunately, once those people do win the lottery, they have a seemingly large supply of money that they know even less about managing than the money they previously had. This perception means that their already poor saving and spending habits are magnified, eventually leaving them worse off than where they started.
…unless they learn how to manage their money. If they have already learned how to be good money managers, they will likely be very careful about how they proceed with the lottery winnings. I would recommend proceeding with a combination of advice that two financial radio show hosts offer.
- Celebrate (Clark Howard)
- Wait (Dave Ramsey)
Clark Howard often recommends to people that they take 10% of their windfall, whether it is from the lottery, an inheritance, or unexpected bonus and do whatever they want with it. This allows them to enjoy the money and get some of that desire to spend out of their system, while keeping the amount reasonable.
Dave Ramsey often recommends to people who will be receiving a life insurance benefit that they park the money in something like a CD for 6 months. He advises them not to do anything major with the money, simply take some time to work through the grieving process. Similarly, in a lottery-type situation, people should park the money and take some time to seriously think through what they would like to do with it. Doing so will likely also create a reality check regarding how far that money will actually go.
Statistically (and by design), most of us will not win the lottery; however, many of us will receive unexpected money at some point. My take on your two bits is to celebrate with a small portion and then park the money while making a deliberate plan regarding what to do with the rest—you may even want to consider taking a money management course.