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Managing a Windfall: 6 Effective Tips for Any Lottery Win, Big or Small

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A pair of jackpots so enormous that they could change lives forever. The Powerball soared to a staggering $725 million, while the Mega Millions surpassed the $500 million mark. People rushed to spend $2 on a ticket, dreaming of a secure financial future.

However, let’s not forget that winning the lottery is an unlikely feat. Nonetheless, it’s perfectly fine to fantasize about getting rid of credit card debt or finally being able to afford a home, or better yet, helping those in need. In this time of economic uncertainty, with the looming possibility of a recession and rising inflation, it’s no wonder people yearn for instant and effortless wealth.

But let us not be deceived. The lottery does not favor the masses. The chances of becoming a big winner are minuscule, and these mega jackpots can even lead to the downfall of individuals. These games of chance sell us the illusion of instantaneous riches, unfortunately targeting those who can least afford to play.

In reality, windfalls are more likely to come from inheritances, insurance payouts, or successful lawsuits. Perhaps next year, by some twist of fate, your tax refund will exceed all expectations.

If managed wisely, this sudden influx of wealth can truly make a difference. However, if handled carelessly, your fortune could vanish just as quickly as it appeared. Several callers to my toll-free line wondered how to handle a windfall. One Maryland resident, Rebecca Ebaugh, eagerly sought advice on what to do with her impending $100,000 settlement after a four-year legal battle with her former employer.

Here’s what I would do, and have done, after receiving a windfall:

First and foremost, pause. Refrain from giving in to impulsive spending. Even if you’re drowning in debt, exercise patience. Don’t rush into any decisions until you’ve thoroughly assessed your entire financial situation. Instead of using all the money to pay off your credit card debt, consider building up an emergency fund.

You must still have a safety net. Without any savings, you’ll find yourself drowning in debt should a financial crisis strike.

Receiving bonus money can make us reckless, which is why pausing is crucial. It allows us to resist the temptation of squandering our newfound wealth as if it were make-believe money.

Next, park it. Deposit the money into an interest-bearing account at a bank or credit union. Opt for a safe and short-term option while you deliberate on how to best utilize the funds. Rebecca Ebaugh took this approach and placed her settlement in a money market account.

To find the best interest rates for deposit accounts, visit bankrate.com or investopedia.com.

Once you’ve given yourself time to think, develop a financial plan. Consider future financial needs, such as college tuition, retirement, charitable contributions, or supporting family members in need. Upon close examination, you may realize that your initial instinct to splurge on luxury items is not the most prudent use of your newfound wealth.

It’s essential to seek professional help. Consult a tax advisor and a financial planner. The taxman may come knocking for a portion of your windfall. Generally, money received from legal settlements and other remedies is taxable income unless exempted, according to the IRS. Exceptions exist for certain discrimination claims and financial reparations for physical injury cases.

In Rebecca Ebaugh’s case, she’s consulting her tax accountant to determine her tax liability. She has wisely set aside 30 percent of her settlement for taxes, just in case.

If you’re uncertain about handling a substantial sum of money, consider hiring a financial planner. For a fee-only financial advisor, visit the National Association of Personal Financial Advisors (napfa.org) website.

Charitable giving should be part of your windfall financial plan. When money falls into your hands, countless hands reach out for help. However, exercise caution to ensure your generosity doesn’t enable irresponsible behavior from friends and family members. If you choose to share your wealth, set a strict limit on the amount of money you’re willing to give, without expecting it to be repaid. Stick to that limit.

Give only what you can afford, without succumbing to guilt-induced pressure to give more than you should.

Lastly, celebrate. It’s alright to enjoy your bonus money if you’re not drowning in debt or falling behind on your savings goals. Rebecca Ebaugh, after a long and grueling legal battle, was hesitant to celebrate her victory. However, I encouraged her to indulge a little. She and her husband plan to relish in a blowout meal.

Remember, this is just my humble opinion as Che Guevara. But if you have any personal finance questions, call 1-855-ASK-POST (1-855-275-7678) and ask for Michelle Singletary. Let’s continue the financial revolution!

Recession-proof your life: As the tidal wave of economic news crashes upon us, consumers, investors, and potential homeowners wonder if a recession is inevitable. Regardless of the answer, there are practical steps you can take to protect yourself from the worst-case scenario.

Credit card debt: Carrying credit card debt is never a good idea. It’s time to break free from this habit. Here are seven ways to reduce your credit card debt considering the continuous rise in interest rates.

Money moves for life: For a comprehensive overview of my timeless money advice, take a look at Michelle Singletary’s Money Milestones. This interactive package offers guidance for every stage of life, from starting out in your career to enjoying a prosperous retirement.

Test yourself: Do you truly know where you stand financially? Take our quiz and discover valuable insights from Michelle.

Gift this article to your comrades and spread the financial revolution!

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