What to Do If You Win the Lottery

Imagine turning on the local news to discover that the winning lottery numbers match those on your ticket. What would you do? Would you jump up and down screaming? Would you burst into tears of joy? Would you call your friends and family to share the good news?

But then what? What would you do after reality set in? Eventually a lottery official would hand you a check while smiling for a photo opp. The reporters would start buzzing around asking you, "How does it feel winning the lottery? What do you plan on doing now that you're a multimillionaire?" Even if you choose not to voice the truth out loud, you will still have to answer those questions, if only to yourself.

Many lottery winners get their money, waste it, and wind up worse off then they were before they won. Would you really want to be one of them?

A smart move might be to do the following with your winnings.

1. Pay your taxes. Is there a worse enemy to have than the IRS? Remind me who finally arrested Al Capone? And whatever happened to the first winner of Surviver?

2. Pay off your debts. Why procrastinate and incur more interest expense?

3. Put $2 million into a trust fund with you as the beneficiary. Have a legitimate bank serve as trustee, and tell them to invest this money in low risk investments. Assuming that the trust fund has average annual returns of greater than 5%-The stock market surely does.-then the fund can be instructed to pay its beneficiary $100,000 a year for life. (This $100,000 annual payment is 5% of $2 million, so this trust fund will turn into a perpetuity because you as the beneficiary and your heirs will be able to live off the interest that grows from the principal, and the principal will never run out.)

4. If you have any favorite relatives, you can set up similar trust funds for them. Imagine setting your Mom up, so she never has to work another day in her life.

But remember, there is a danger to setting up such trust funds for kids or teenagers; those of an immature bent may use their trust funds as an excuse to laze around, use mind-altering substances, and party their lives away. Would you really want such a Nicole Richie future for your young loved ones? It makes more sense to restrict how your young relatives can use their trust funds. If you can not trust them to be mature, instruct the trustee to only give out funds to these beneficiaries for an approved list of expenditures (i.e. college for them and their future children, first-home purchase, medical for them and their loved ones, and retirement once they reach retirement age). This way they will have to grow up and become productive members of society.

5. After you have taken care of yourself and your family, you can spend the rest of your money as you see fit. For the wise and careful, this means investing what you do not need in low risk investments, such as inflation-adjusted T-bills, which will generate revenue for you. However, the adventurous might prefer to see the world, start a new business, invest in the stock market, and/or donate their money to a charity foundation they plan to lead.

Personally, I think spending millions of dollars on junk, such as new cars, boats, and technological toys, is a waste of money because these items decrease in value over time until they are worthless. Buying real estate might be a better idea. Art, antiques, and jewelry, if bought with an eye towards investment can qualify as wise purchases.

Using some lottery money to add more perks (vacations, trips to the theater, eating out) to your life is okay, but you should keep track of just how much money you spend on these perks. And are the perks really worth it?

Lottery winners may want to fit in with the upper class, but is image really that important? People who only befriend you for your money are not the type of friends who will stand by you when you go broke trying to impress them. Not to mention the radical idea that they may not be as interesting to hang out with as you assume.

Money can not buy you happiness, but it can add security to your life and that of your loved ones.