How could you possibly go broke after winning hundreds of million of dollars? It’s a lot easier than you may think…
With the next Mega Millions jackpot estimated at $1.6 billion ($904 million if you take the lump sum), many people are wondering what life would be like with all that money.
How you could hit the Mega Millions jackpot and still end up broke
But really, what if money suddenly fell out of the sky and into your life? Maybe you win the lottery, or you get an injury settlement or maybe an inheritance. And while a $1.6 billion jackpot is rare, there are all kinds of different situations in which you could be left with a lot more money than you’re used to.
When money shows up out of thin air, most of us have no clue how to handle it. And very often, it quickly burns a hole in our pocket.
Now the odds of winning big money have gotten even worse as lottery officials not long ago tweaked the Mega Millions and Powerball formulas so that customers have a greater chance to win smaller prizes instead of tens of millions of dollars, according to the Washington Post.
Be careful how you spend all that money!
Remember the so-called “Ocean’s 16” from Ocean County, New Jersey, who each won $3.8 million (after taxes) in an August 2013 PowerBall jackpot that grabbed everybody’s attention?
Well, that’s a huge amount of money. If it’s well-managed, it can provide comfort to you for the rest of your life. But therein lies the rub.
For most people who come into big money — like athletes or lottery winners — all of a sudden their wants instantly skyrocket. If those lottery winners back in 2013 gave into those wants, research shows they’ll blow through $3.8 million in just six years!
If you ever come into a large inheritance or sell a business and get a pile of money, restraint is key. I’ve long told people in this situation to blow 10% of it however you want. But the other 90% you treat as a nest egg to nurture.
History (and science) show money doesn’t equal happiness
Jack Whittaker, a millionaire from West Virginia, became a much bigger millionaire when he won a $315 million lottery in 2002. After four years, Whittaker was broke and had lost both his daughter and granddaughter to drug overdoses (which he blamed on the lottery winnings). In addition to all that, Whittaker was robbed of $545,000 in CASH, as he sat in the parking lot of a strip club. Whittaker said, in hindsight, “I wish we had torn the ticket up.”
According to NBC News, a 2008 University of California study that measured people’s happiness six months after winning a relatively modest lottery prize didn’t exactly produce the results you may have imagined. The study looked at those who won an amount equivalent to about eight months’ worth of income. The winners had taken the money in a lump sum. The study found that winning the money, “had zero detectable effect on happiness,” according to Peter Kuhn, one of the study’s authors.
It’s easy to say, but so hard for people to do. As for me, if I won that kind of money, I would change nothing. I would still get up and come to work every day. I would just think about what charity I could give it to! But that’s just me.
A final word of advice for future lottery winners!
Never take the lump sum payout. You’re better off taking the payout over years as a method of forced budgeting. If you worry your heirs won’t get all the money you have coming to you, buy a term life insurance policy that would pay them for what you would not receive if you die prematurely.
Remember, most of us do better with basic allowances than a huge sum of money right then and there!
Meanwhile, you don’t have to win the lottery or get an inheritance to come into extra cash. See some free and easy ways to search for missing money in your name.
Want more money-saving advice? See our Money section.