3 mistakes you shouldn’t make if you win the $970 million Mega Millions jackpot
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The top prize for the Mega Millions lottery has reached a whopping $970 million , according to the game’s official website. That’s the second-largest grand prize in U.S. history. And while your chance of winning is a slim one in 302.6 million , coming into money like that would […]
And while your chance of winning is a slim one in 302.6 million, coming into money like that would be life-changing. The median American household has only $11,700 in total savings. Even the top 1 percent of earners has $2.5 million in savings on average, or about 360 times less than the current lottery jackpot.
Meanwhile, credit card debt in the U.S. has reached a high, according to a report from the Federal Reserve, surpassing $1 trillion in 2017, and student debt is holding back a generation: The average 20-year-old with loans owes$22,135, and the average 30-year-old with loans owes $34,033.
If you find yourself holding a winning ticket, though, it doesn’t mean all your financial worries will go away. Lottery winners are actually more likely to declare bankruptcy than the average American.
CNBC Make It spoke to some money experts about coming into a huge windfall. Here are three mistakes they say you should avoid if you want to make the most or your winnings:
While $970 million is a lot of money, it can go quickly if you’re not responsible with it. Instead of splurging on an airplane or a yacht, place a significant portion of the the winnings in an emergency fund, a high-interest earning savings account and/or a retirement account, such as a 401(k). You could also invest in the stock market if you follow the advice of the experts.
Get rid of your loans and other obligations, too. “Pay off all high-interest debt immediately, and then tackle the rest of your debt,” Rich Ramassini, a certified financial planner and director of strategy and sales performance at PNC Investments, tells CNBC Make It.
“The remaining funds can be used for your daily living expenses and put aside for expected future purchases,” Ramassini says.
And then have some fun: “Do not deprive yourself. After you have met all other obligations and consulted a team of professionals, feel free to spend a bit on a dream vacation or a new car.”
Managing millions of dollars is a huge responsibility. So, don’t be afraid to ask for help. “The first thing to do is contact a financial planner and an accountant,” Greg McBride, chief financial analyst at consumer financial company Bankrate, tells CNBC Make It.
“Don’t quit your job or make any big decisions. That can wait until the dust settles.”
A planner can help prioritize your needs and create a budget, Ramassini says, and can also help you decide whether to take the money in a lump sum or in a series of payments.
“Think of this person as the quarterback of your advisory team. He or she will review your new financial situation and help you establish your goals for spending, saving, giving and investing. They will help you outline short- and long-term goals while factoring in the outlook for inflation and investment market volatility over the next 50 years, depending on your life expectancy.”
Also, a planner “will advise you about the tax obligations related to your winnings and how they may impact your planning” and “prioritize how to allocate the remainder to meet your financial goals.”
“When you’re talking about that large of an amount,” Nick Holeman, a certified financial planner at online-investment company Betterment, tells CNBC Make It, “your situation gets very complicated, very quickly. You’ll be subject to higher rates of taxes, your tax deductions get phased out … and you have new taxes that you weren’t even subject to before.”
You may want to consider hiring an attorney who can strategize with you about how to protect your money, now and going forward. “You will need their help in preparing a will and an estate plan or trust accounts that reflect your newfound financial prosperity,” says Ramassini. “Those documents are designed to protect your financial future, as well as provide for future generations.”
Aside from a few family members, close friends and your financial team, you shouldn’t broadcast to the world that you just won the lottery. Unfortunately, that’s not always easy. A New Hampshire woman holding the winning Jan. 6, 2018, $559.7 million Powerball ticket had to go to court in a fight to remain unnamed.
Some states will allow winners to remain anonymous and some won’t. But if you live in a state that will publicize your identity, you can create a trust fund or another legal entity to receive your winnings.
If you plan ahead, it may be easier to keep a low profile. “While you might want to shout this life-changing news from the rooftops,” Ramassini says, limit your circle of confidantes to only a few.
“Money can change, disrupt or end relationships. It can also lead to you hearing from relatives or friends you never knew existed,” he says. Plus, “fraudsters and thieves are paying very close attention and are already scheming up ways to find the winner and steal his or her money.”
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