6 tips for handling a bargain – even if it’s not the Mega Millions
As Mega Millions Hits $1 Billion, Winning Doesn’t Mean a Happy Ending
It’s no wonder people hope for wealth from microwaves. People fear that a recession is approaching or has already arrived and worry about how to deal with rising inflation and rising consumer prices.
But lotteries do not favor the masses. Big winners are extremely rare, and sometimes those mega jackpots can ruin lives. Gambling sells dreams of instant riches that unfortunately appeal to those who can least afford to gamble.
In reality, more people are likely to get a windfall from an inheritance, an insurance payout, or a court victory. Maybe next year your tax refund will be surprisingly high.
A quiz on your low odds of winning Mega Millions
If managed well, this bonus money can do some good. Otherwise, your sudden wealth could leave you broke just as quickly.
Several calls to my toll-free line (1-855-QUESTION–PUBLISH or 1-855-275-7678) asked how to handle a deal.
“I waited four years to get a legal settlement that involved being fired from my job,” Maryland resident Rebecca Ebaugh said when she called the toll-free line. “Now that it’s coming true, I don’t even know if I should even try investing it with the economy being so perilous right now. What would you do with almost $100,000?
Here’s what I would have done and what I would have done after receiving a boon.
– Pause. Put the brakes on an impulse to spend right away. Even if you are deeply in debt, wait.
Do not rush into any decision before having examined your entire financial situation. Maybe you need to build up your emergency fund like I explain here – even just a little bit – rather than using all the money to get rid of your credit card debt.
You always need a rainy day fund. Otherwise, if a financial crisis hit you with no savings, you would be back in debt.
Getting bonus money might make you a little reckless, so pausing gives you time to think about how best to use the funds.
We also tend to think of a bargain differently, as if it were not real money but play money. Pausing helps you resist the temptation to waste it.
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— Park it. Put the money in an interest-bearing account at a bank or credit union. You want something safe and short-term while you decide what to do with the money.
That’s what Ebaugh did. She parked her settlement in a money market account.
Two sites for finding deposit accounts with the best rates are bankrate.com and Investopedia.com.
– To plan. Take the time to develop a financial plan. Consider future financial needs, such as your children’s tuition, retirement, charitable contributions, or loved ones you would like to help. Once you think about it, you might realize that your first instinct to splurge on an expensive car or a fancy vacation isn’t the best use of funds.
The Mega Millions jackpot is $1.2 billion. Here’s what people would do with it.
— Pay for professional help. Find a tax advisor and a financial planner.
The taxman could come and collect some of your money. Generally, money received from lawsuit settlements and other legal remedies is taxable income unless exempt, according to the IRS.
“For damages, the two most common exceptions are amounts paid for certain discrimination claims and amounts paid due to physical injuries,” the agency explains on irs.gov.
Ebaugh, 67, whose claims against her former employer included discrimination based on age and disability, said she was consulting with her tax accountant to determine her tax liability. She set aside 30% of the settlement for taxes just in case.
If you’re unsure how to handle a large lump sum of money, consider hiring a financial planner. You can find a paid financial advisor by going to the National Association of Personal Financial Advisors website (napfa.org).
Ebaugh spoke to his financial advisor and invested his funds wisely.
— Putting philanthropy into perspective. When the money falls into your hands, it’s amazing how many hands start asking for help.
Charitable giving can be part of your exceptional financial plan.
She won the lottery. Then she shared her windfall with strangers.
But be careful that your donations do not allow your family and friends to be irresponsible. If you decide to share your wealth, set aside a specific amount of money that you are willing to give, not lend. Stick to this limit.
Give your extra. Don’t feel guilty giving more than you can afford.
– To party. It’s okay if you’re not in debt or behind on your savings goals to have fun with your bonus.
Ebaugh said her long legal battle has made her very reluctant to celebrate his victory.
I encouraged her to splurge a bit.
“My husband made me promise that we were going to have an explosive meal, and we are going to do it,” Ebaugh said.