Contributed By: Jon Freeman
First of all – many financial gurus and advisors will tell people “Do not play the lottery” (mainly because the chances of you winning the lottery are very small) How small you may ask? The odds of winning the Georgia Powerball Lottery Jackpot are about 1 in 292 million – according to the Georgia Lottery website. You are more likely to be killed by a mountain lion (1 in 32 million) than you are to win one of the big lottery jackpots worth millions of dollars. But if you do win, here is what author David Pogue says you should do in his new book “Pogue’s Basics: Money – Essential Tips and Shortcuts”:
1. Keep your life stable. This one can be harder than it seems. Studies have shown that many lottery winners are broke within 5 years of winning the lottery. According to Pogue, the reason for this is because other people will find out you have money. You will be buried by requests for money. Family, friends, neighbors, coworkers, distant relatives you didn’t even know you had… may all come to you asking you to give them money. Everyone who has ever been nice to you will come at you with open hands asking for money. What you should do, Pogue says, is hire a financial adviser, and funnel all requests to that person.
2. Consider the taxes. Just because you win millions of dollars does not mean you have that much money to spend. Because the government takes taxes from your winnings. For example, Pogue explains that if you win a $300 million lottery prize, and the government takes 40% in taxes and your state takes its cut, the amount of money you really get from the $300 million prize is now only something like $162 million.
3. Make the right payment choice. When you win you can be faced with a tough choice. You can take the $300 million in yearly installment payments spread out over 30 years (called the annuity option). Pogue says that if you want to get all of the prize money right away and not get the yearly installment payments you will have to accept a smaller amount (like $172 million instead of $300 million). Most people take the smaller immediate payment they can get right away. However, that could be a poor decision. Pogue recommends people who win hire a financial professional to help figure out what option is the best one. There is a lot to think about with such a decision.
For more useful information about managing your personal finances feel free to visit the Gwinnett County Public Library’s GCPL Personal Finance Guide.