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What NOT to Do If You Win or Inherit Money

Ginger Abbot  |  July 16, 2021

Congratulations! This money could benefit your financial future in ways you haven't even dreamed. Here's how to be responsible.

If you’ve recently come into a lump sum of money, congratulations! While not all unexpected cash infusions are as joyous as a lottery win, the most important thing you can do with any cash you win or inherit is to invest it and spend it wisely. With a little advance planning and some financial responsibility, this money can change your life. Of course you can have a little fun. You deserve it! Just make sure the vast majority of your money is put towards your bigger, future goals. Here’s a look at some of our favorite tips for using your money responsibly. 

1. Limit the Number of People You Tell 

Whenever you find yourself in possession of large amounts of cash, you’ll probably feel a little overwhelmed. This may lead you to telling several friends and family members about your news. This is understandable! It’s nice to receive heartfelt congratulations, and get trusted opinions on what you should do with your money… But try to keep the circle of people who are “in the know” as small as you possibly can. People may start asking for favors or loans, and it can be a slippery slope to walk down, even with people you love. Your friends and family members will all have needs, such as a new business they want you to invest in, a new baby on the way, or college tuition for a child. There’s no reason for you to become the new “ designated spender” in your circle. Be careful that you don’t set a precedent that you’re available to help out with other people’s finances.

2. Consider Taking Annuity Payments 

When you win the lottery, you usually have a choice between receiving an annuity that pays out annual payments over time, or an up-front payment that gives you your cash immediately. For example, Powerball and MegaMillions offer 30 annuity payments over the course of 29 years. If you’re relatively young (50 or under) then the annuity option probably makes the most sense for you. Receiving annual cash installments can encourage you to spread out your spending, and creates a stable source of income for you for decades to come.  

3. Hire Professionals to Help Manage Your Money 

Having a financial advisor is always a good idea, but it’s especially recommended if you’re dealing with large sums of cash from a lottery win or an estate that you inherited. A financial advisor can guide you on how best to protect your financial assets, and they can also offer advice on the smart investments you can make for yourself and your family. When looking for an advisor, understand the different types, such as fee-only advisors. Also, look for ones that offer the services you need and abide by a fiduciary standard, which means they always have their client’s interest as their top priority. Then do your research before making any final decisions. Vet their credentials, and make sure your advisor can help guide you on the (likely higher) taxes you’ll pay, what your new budget should look like, and how to invest. 

4. Pay Off Your Debt

One of the first things to consider when you win or inherit money is how much debt you have. Paying off your debts is one of the best things you can do in order to secure your financial future. Particularly high-interest debt, like credit card debt, should be paid off first. In addition to the crazy amounts of interest you can pay when you carry a credit card balance, having credit card debt can lower your credit score and impact your ability to get approved for loans. Just keep in mind that paying off debts can take time. So be diligent about ridding yourself of debt, but don’t get discouraged if your balances don’t hit “$0” on the first day. A healthy financial life is a marathon, not a sprint. 

5.  Keep Your Lifestyle the Same 

It’s natural to feel like a “big spender” when you have money for the first time in a long time, or maybe ever. Treat yourself, absolutely. Just don’t go crazy. There are reasonable splurges, and then there are crazy splurges… When in doubt, talk to your financial planner. They can guide you on how much of your money can be spent now so you’ll have plenty to enjoy and invest in the years to come.

One way to ensure you keep the car in the road and continue to live within your means is to have a budget. It’s one of the best ways to ensure you’re managing your money responsibly. Budgets can hold us accountable and help us see where we might be overspending, and where we might be able to indulge a little more. Between your budget and your financial advisor’s guidance, you’ll have no problem staying on track. 

6. Don’t Quit Your Day Job 

When you come into a lump sum of money, it’s easy for our minds to wander to a place where we’re sailing off on our yacht to our own private island and leaving all our worries behind… But how “secure” is that security you’re feeling? If you win $100 million, sure, you’re set for life if you spend it and invest it wisely… But if you inherit, say, $200,000, that money isn’t going to last forever. Yes, it can have an incredible impact on your future and may mean that you can retire several years earlier than you’d planned, but smaller amounts of money shouldn’t inspire us to tell our bosses goodbye, even if we may really, really want to. Try to think of this chunk of money as “bonus” funds, and your life is still your real life — just a little richer. 


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