The odds of winning the Mega Millions jackpot, which is now $940 million, is 1 in more than 300 million. While very few will experience that kind of windfall in their lifetime, the lottery isn’t the only chance to come into sudden wealth.
Whether it’s an inheritance, sale of a property, bonus or even a tax refund, there are other ways to receive an unexpected sum in a lifetime.
“It’s common enough,” said Daniel Scott Johnson, an investment advisor and founder of Windfall Advisors in Los Angeles.
In every case, there are certain steps you can take to make the most of it.
“Money can be a taboo subject in a lot of families, which means it rarely gets discussed,” said Ajaie Albert, communications director of Lotto N Crowd, an online lottery service. As a result, many people don’t “have a firm understanding of how money can work for you.”
“Throw in any unexpected large sum of money, whether it be from a lotto winning, inheritance or significant bonus at work, and we’ll typically see a few individuals end up worse than where they started,” he added.
To avoid the all-too-familiar pitfalls, start by building an experienced team, including an accountant, financial advisor and an attorney to protect the money and your best interests.
Then, “do nothing,” Johnson at Windfall Advisors said. “I wouldn’t recommend making any major purchases or changes to their lifestyle until they come up with a financial plan.”
If you don’t already have an investment account, park the funds in a high-yield savings account or money market account, Johnson advised.
“Money markets are a fantastic spot to be in a bear market and they pay a nice rate given all the risk in the market right now.”
Work with an advisor to determine your short-term tax liability and long-term goals, Johnson said.
The ultimate objective, he added, is to “protect the funds, preserve the funds and try to grow the funds with the least amount of risk.”
Online lottery service Lotto N Crowd also offers these three tips for anyone experiencing sudden wealth.
- Create an emergency fund. Most people lack a sufficient emergency fund, and $1,000 or more could go a long way toward covering some of the most common unexpected expenses, such as a car repair or broken appliance. Consider keeping a portion of your cash in a high yield savings account, which will earn interest without sacrificing accessibility.
- Invest in financial literacy. The more you know about the financial services available to you, including banking, insurance and investing, the better off you will be. Get up to speed with the help of a financial advisor so you can make informed decisions on what’s best for yourself and your family.
- Make an action plan. Don’t wait until the money is in hand to try to determine what to do with it. Come up with a plan to put those funds to good use, starting with paying off bills and high-interest debt and limiting impulse purchases, which can easily erode even the biggest balances.
(With inputs from CNBC)