7 Ways to Invest Your Lottery Winnings Wisely

Winning the lottery is an exciting event that provides a windfall of money, but it comes with several financial decisions to make. We walk you through seven ways to invest lottery winnings wisely and profitably.

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Hopefully, you read this article shortly after your big lottery win. Winning the lottery can provide you with financial security for a lifetime.

However, it requires several sound financial decisions to ensure your money stays secure and grows over time. Contrary to popular belief, lottery winners don’t splurge their recently-earned money on frivolous and unnecessary material assets.

According to a national study, 33% of the people surveyed gave some of the money to their children. And 37% invested in stock and real estate.

If you just won the lottery or hope to one day, follow those wise steps and check these seven places where you should invest in your new or future windfall.

1. Pay off all your debts

Short-term debt, credit card debt, and other high-interest loans should be on the top of your priority list after winning the lottery. Before you invest in any other assets, it would be best to wipe your debt slate clean.

Debts like utility bills, fines, expenses, and other fees can harm your credit score, hindering your ability to obtain any loans in the future.

Debts usually have higher interest rates, which means waiting could cost you in the long term. Even the fines or government fees could result in legal trouble, so it would be wise to target these first.

Take an inventory list of your debts and the total amount of each. Once you have this number, you can assess the best way to attack it. However, the best choice is to pay off 100% of these loans.

Doing so will save you stress in the short and long term.  Here are some other reasons why paying off debt with your lottery winnings is a wise decision:

  • Strengthen financial security – although you won the lottery and have the funds right now, paying off these debts will ensure that you have financial security in the long run.
  • Minimize the total number of bills you manage – paying off your debts means there is one less thing to worry about, which will reduce your stress.
  • Boost credit score – lingering debt can harm your credit score, which could also reduce investment opportunities in the future.
  • Lessons learned – paying debt off early can serve as a valuable lesson to your children, while instilling sound financial principles.
  • Escape from the control of a lender – if you have debt, lenders have a say in your finances. By paying off all your debt, you can have 100% freedom and flexibility with your money and assets.

2. Get Legal & Financial Advice

One of the first things you should also do after winning the lottery is to hire financial and legal consultants. You probably have not won the lottery before, so this is unfamiliar territory.

Having a reliable team to guide you through the process would be wise.  A certified financial planner will collaborate with you on a sound plan for investing lottery winnings.

They can educate you on tax laws and thresholds while advising on the best way to receive your lottery winnings (annuity or lump sum payments).

They will also coach you on building a healthy lifestyle that aligns with your current financial situation.  An attorney is also a critical team member to have on your side if someone tries to sue you or initiate a claim against you.

If you make any other capital investments or decide to start a business, they can also walk you through that process. You have the funds to invest in a partner, so make sure you choose wisely. 

Here are some essential tips when searching for a financial or legal advisor:

  • Check the credentials closely
  • Locate a legitimate fiduciary
  • Understand how a financial advisor or legal attorney gets compensated for their services
  • Prioritize advisors that are fee-only

3. Invest in the stock market

Another excellent source for your lottery winnings is through stock market investments, specifically low-risk vehicles. Depending on your knowledge of the markets, you can be flexible with the companies or funds you choose. 

Regardless, the stock market and its different financial instruments are an excellent way to compound your lottery winnings without being involved.

Exchange-traded funds (ETFs) are low-risk investments that allow you to build your wealth even more over time. Individual stocks can be volatile and risky, leading you to lose your money if you make consistently bad choices.

If you have a financial advisor, they will walk you through the stock market and the right choices to make here.

4. Invest in real estate

Invest lottery winnings in real estate might be one of the best decisions. Real estate investors enjoy profits in several ways, including appreciation, rental income, and any additional proceeds from business operations that rely on the property.

The best benefit of a real estate investment is passive income. Passive income brings you money without investing any time. You can buy a property, rent it out to a tenant, and then collect monthly passive income

There are also several tax advantages to investing in real estate.  If you wish to have a more hands-off investment approach to real estate, you can always go the real estate investment trust (REIT) route. 

A REIT is bought and sold like a stock, but it has physical property or real estate investments to back it up.

5. Create an emergency fund

An emergency fund might seem like the last priority for you after cashing in big on the lottery. However, it serves as an insurance policy if an unexpected event causes you to lose a lot of your money at once.

No matter how strategic or frugal you might be, unfortunate events could happen. If you safeguard a certain amount of funds to the side, you will thank yourself later.

So, how much money should you put into your emergency fund? It would be best to move at least 6-12 months of living expenses into a high-yield savings account

Not only will this account grow this money at a more respectable rate than your typical savings account, but it will also give you an efficient way to withdraw the money.

6. Create an estate plan

Every individual on earth should have an estate plan, and it would be best to review it on a consistent cycle. Certain life events can also trigger a review of an estate plan. 

Your financial advisor can walk you through this phase, but you will need to establish accounts to protect your lottery winnings and other assets.

When you go through this process of creating or amending an estate plan, surround yourself with people you trust. You want to make sure your lottery winning and hard-earned funds are in good hands when you pass away.

7. Donate to charity

If you want to impact your community, donating your lottery funds to charity can be a fulfilling strategy. What organizations or causes are important to you?

There are several entities in your communities that could partner with. Whether it’s a church, nonprofit organization, or animal shelter, you can put your funds to good use.

Donating to a charity also comes with tax benefits. According to Fidelity, you can deduct approximately 60% of your gross income for the year (adjusted).

Final Thoughts

Winning a million from the lottery is a lucky accomplishment but transforming that million into more millions is a worthwhile accomplishment.

If you invest lottery winnings into the seven areas listed above, you will gain profitable returns, enjoy the things you care about, and live a stress-free life.

FAQ's

When you win millions from the lottery, you might have a million questions too. Below are a few of the most common questions answered regarding your lottery winnings.

Can you give money to family after winning the lottery?

The important thing to state here is simple: the amount of money you give to your family does not define how much you love or care about them.

At the end of the day, it is your money to spend, and you have full authority over how you invest it.  If you wish to give money to your family, initiate the conversation with gratitude and openness.

Have a reason for giving them the money, and then encourage them to use it wisely.

How much taxes do you have to pay on lottery winnings?

The taxes you pay on lottery winnings depends on the state you reside. You will pay state taxes on lottery winnings, but you might also pay higher federal taxes.

Gaining your lottery windfall could elevate you into a higher tax bracket.

Do you need a special bank account for lottery winnings?

Bank deposit accounts can be a reliable location to save your lottery winnings. Because these are more liquid accounts, you can still withdraw your funds consistently.

If you want a higher interest rate, certificates of deposit are another good solution. However, you must keep the funds in the account for a required period, or else you will need to remit payment for a penalty.


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