While your chances of winning a Powerball jackpot are only about 1 in 292 million, snagging a winning ticket might seem like the ultimate dream come true. But believe it or not, that dream can quickly turn into a nightmare. Despite the sudden wealth, a significant number of lottery winners end up in a worse financial situation than before they hit it big.
Often due to poor financial management, lack of planning, and impulsive decisions, the newfound wealth can vanish as quickly as it arrived. Here are nine common mistakes people make after winning the lottery.
1. Not Securing Financial Advice
Winning a huge amount of money can be overwhelming, and without the right knowledge about how to manage it, one can easily mismanage these funds. That’s why winners who neglect to hire a professional financial advisor can end up facing worse financial woes than before. Advisors can help someone make informed decisions, including how to invest wisely, plan for taxes, and ensure the money will last in the long term.
2. Overspending
The thrill of suddenly having more money than one could imagine can lead to extravagant and unsustainable spending. From splurging on luxury cars and mansions to high-end vacations and apparel, these lavish purchases can drain resources faster than expected. Just ask this guy who won 9.7 billion pounds (about $15 million) in England in 2002, only to spend it all in five years.
3. Neglecting Taxes
Like most earnings, lottery winnings are subject to taxes. While the actual amount will vary depending on the state, the money owed to Uncle Sam can catch winners off guard. In the U.S., for example, winnings are considered taxable income at both the federal and (sometimes) state levels. Without setting aside enough money to cover these taxes, winners can find themselves in debt — or even face legal troubles.
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4. Quitting Their Job Immediately
While the idea of never having to work again is appealing, quitting your job after winning the lottery can lead to unforeseen consequences. Beyond the financial implications, having a job or career can also provide structure, social interaction, and a sense of purpose.
Related: ‘Work Hard, Play Hard’ and Other Red Flags That SCREAM Toxic Workplace
5. Investing in Risky Ventures
After seeing their bank accounts grow by several digits, winners may feel tempted to keep growing their earnings by investing in dodgy business ventures without doing proper research or inquiring with a financial expert. This can result in hastily investing large sums of money in high-risk stocks, businesses, and projects that are volatile, or in worse cases, outright scams.
Related: 5 Common Scams People Really, Really Need To Stop Buying Into
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6. Giving Too Much Money Away
When all your money woes are suddenly gone, it can feel natural to want to share this newfound wealth with family, friends, and charitable organizations. However, without setting boundaries or a clear plan, generosity can quickly deplete one’s funds and make way for financial strain. Overestimating how much money you have can also lead to insufficient resources for personal needs, taxes, and future savings.
Related: 13 Retirement Mistakes to Avoid
7. Falling for Scams
Lottery winners often become targets for con artists and scammers looking to exploit their newfound fortune. These can range from phony investment opportunities to fraudulent charities. Another common pitfall is “lifestyle creep,” which refers to a gradual increase in the spending of luxury and non-essential items as one’s income rises, often at the expense of one’s long-term financial goals.
Related: How To Avoid Lifestyle Creep After a Raise, According to Redditors
8. Choosing the Lump Sum Instead of Gradual Payments
After winning the lottery, players are presented with two payout options: They can either receive the prize money in annual installments over 30 years, or opt for a one-time lump sum payment. Most people, as expected, opt for the lump sum. But according to experts, this might not be wisest financial choice.
“People almost always choose the lump sum payment instead of the annuity, which is hands-down the biggest mistake,” investment manager Robert Pagliarini told Fortune. “I get it, people want the money now. The problem with that is then people can do whatever they want with the money. For some people it’s totally fine. [But] what we know about lottery winners is that they don’t make the best financial decisions.”
Bottom line: Opt for annual installments because they can provide a steady income over many years, which can help with budgeting and reducing the risk of squandering all the money too quickly.
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9. Failing To Plan for the Long Term
Without a long-term financial plan, it can be easy for winners to spend large amounts of money without considering future needs. This can include failing to save for retirement, emergencies, or setting up trusts and estate plans for family members. To ensure that the wealth lasts for both the winner and their loved ones, it’s important to set financial goals for years to come and work diligently towards achieving them.
