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You've Just Won The Lottery! So Now What?

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By Jean Chatzky

Published: November 25, 2007

We all fantasize about what we would do if a pile of money dropped onto our laps. If you're like me, your plans have probably changed a bit as you've gotten older - dorm-room conversations about blowing it all on a far-flung vacation and a new car have turned into dinner party chats about paying down debt, sending the kids to the college of their dreams and spreading the wealth among family members.

But the truth is, you don't know how you would handle a financial windfall until it hits you square in the face. Even then, the idea of sudden wealth leaves some people paralyzed.

That's where Susan Bradley and her Sudden Money Institute come in. Some time ago, Bradley realized there was a gap in the financial-planning market. People hit with large amounts of money - from an inheritance, a new job or the lottery - were struggling to adjust.

"We all have ideas of what more money would do for us and what we would do with it," says Bradley. "But even if you think you're prepared for it, my experience is that it's usually different than what we expect. It's more complex and has more human elements than financial elements."

That's because a sudden rush of money is very often tied to an emotional event, such as the death of a family member, a divorce or a lawsuit settlement.

So what do you do when a casual dinner party conversation turns into a reality?

Sit on your hands. "Honestly, the first thing to do for almost anyone is to not do anything," says Jeanne Brutman, a financial planner in Long Island, N.Y. "Put the money in the bank - get a decent rate of interest, of course - then sit and breathe for a week or two."

We've all read about lottery winners who blow through their payout within a year. They went on spending sprees, made irrational investment decisions or gave large amounts away without thinking it through. Sudden windfalls are nearly always tied to a stressful event (even winning the lottery can keep you up at night), so it's really best to let the excitement or grieving period pass before making any big decisions.

Meanwhile, put the money in a high-interest savings or a money market account.

Don't make empty promises. In fact, don't make any promises.

Ever seen the Nicolas Cage movie "It Could Happen to You"? In it, he promises a waitress half the money if a lottery ticket proves fruitful; needless to say, it does. And his marriage dissolves when the ticket is a winner and he pays up.

An extreme case? Absolutely. But casual comments to even the closest of family members can backfire. If you want to spread the wealth, it's best to surprise them after you've spoken with a professional.

Seek counsel. You're definitely going to want a financial planner, and - depending on how much cash -likely a lawyer and an accountant.

The ins and outs of big money and its tax implications are just too complex to tackle on your own.

Consider how the money fits into your financial picture. A lot is going to depend on what your finances looked like before the windfall. If you don't have any debt (and that means credit card, mortgage and loans), you really have a lot of freedom.

You'll want to max out your retirement accounts (if you're not doing so), set up an emergency cushion and make sure you have adequate insurance coverage. Then you can start dabbling in the market more, giving to charity and even splurging a little with anything left over.

If you're in the hole, however, your best bet is likely going to be paying off debt first.

Hang on to old habits. More money doesn't mean you can spend willy-nilly. Keeping the same money-management routine will make your money last longer.

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