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What is the biggest mistake a lottery winner can make?

Winning the lottery can be an incredible stroke of good fortune, but it can also be a curse if not handled properly. With a multi-million dollar prize comes great responsibility, and many lottery winners end up losing it all by making avoidable mistakes. According to research, nearly one-third of lottery winners declare bankruptcy within 5 years of winning. This is often because they don’t know how to manage their newfound wealth. In this article, we will explore the biggest mistakes lottery winners make and how to avoid them.

Not seeking professional advice

One of the biggest mistakes lottery winners make is trying to manage their finances on their own without seeking professional advice from financial planners, accountants and lawyers. A windfall of millions of dollars requires expertise to invest and manage properly. Handling finances on your own can lead to making ill-advised investment decisions or getting embroiled in legal issues due to lack of counsel. According to financial experts, the first thing lottery winners should do is assemble a team of experienced professionals to help navigate through sudden wealth. This includes hiring a tax attorney to manage tax liabilities, a financial advisor to invest the money wisely, and an accountant to handle balance sheets. While these services cost money, it is a small price to pay to manage millions properly. Lottery winners should see the advice of professionals as an investment rather than an expense.

Going on a spending spree

Another common mistake lottery winners make is going on a spending frenzy and purchasing expensive items like mansions, luxury cars, jewelry and lavish vacations. Without proper planning, the prize money can quickly evaporate, leaving winners with nothing. For instance, a $15 million prize might seem like a lot but can disappear in a few years if not spent prudently. Experts advise lottery winners take time to plan their spending carefully rather than rush into buying everything they want. It helps to make a budget, set savings goals and think long-term. Splurging on some purchases is fine but going overboard can lead to future financial hardship. Reasonable spending balanced with smart investing and saving is the best approach.

Not planning for taxes

Winners often make the mistake of not accounting for taxes when they get their prize. Depending on where you live, lottery winnings can be subject to federal and state income taxes of up to 50% of the prize money. It is critical to immediately set aside money to cover those taxes. The worst case is when winners spend their entire prize and then are hit with a massive tax bill they can’t afford. This can lead to financial ruin. Experts strongly advise lottery winners work with a tax attorney and accountant to determine tax liabilities and set aside the appropriate amount in a safe account before spending any of their winnings.

Going public right away

Privacy and security are compromised when lottery winners announce their windfall to the world right away. It exposes winners to risks like harassment from long-lost relatives and friends asking for money, scams, increased solicitations and even theft and lawsuits. It might seem exciting to hold press conferences and share your big news but it can attract bad actors and make you a target. Financial experts suggest lottery winners wait at least 6 months before going public about their prize. This gives them time to stay out of the public eye, hire security if needed, pay off debts in private and assemble their advisory team. By lying low initially, winners give themselves time to carefully plan their next steps.

Not paying off debts

It may be tempting to go on a spending spree right after winning the lottery but one of the smartest things winners can do is pay off any existing debts first. This provides financial security by settling credit card bills, student loans, mortgages and other obligations. Not only does it give peace of mind but it saves money otherwise spent on interest payments that can add up significantly over time. Any remaining prize money can then be wisely invested and spent. Too often lottery winners blow their winnings on luxury splurges only to still find themselves in debt. Prioritizing becoming debt-free helps put winners on solid long-term financial footing.

Putting money into dubious investments

Coming into a financial windfall opens up many tempting investment opportunities, but lottery winners should beware putting money into vague projects, get-rich-quick schemes or businesses of friends and family. Without proper vetting and advice from your financial advisors, it is easy to invest millions into risky schemes where you could lose everything. Examples include sinking money into a start-up with untested ideas, foreign investments you don’t understand, volatile crypto currencies without limits, or someone’s plan to launch a restaurant with no experience. Making smart, calculated investment decisions takes research and expert consultation. Winners should take time to learn about safe investment vehicles and diversify holdings. Never invest in something you don’t fully vet or understand.

Being too generous

It’s admirable to want to share your lottery winnings and help people out once you come into big money. However, winners can damage their finances and friendships by being overly generous. Well-meaning gifts and loans to friends and family can be taken advantage of. Some people feel entitled to your money and expect constant handouts. And large gifts can enable bad habits and get wasted. Be cautious about giving money outright to anyone. Financial experts suggest making people earn money through business partnerships instead of just taking gifts which breeds entitlement. Also cap gifts to modest amounts that don’t cause dependency. And consider paying directly for others’ essentials like medical bills or college tuition instead of handing out cash.

Ignoring estate planning

Many lottery winners don’t think about estate planning after receiving their windfall. But drafting a proper will and designating beneficiaries is important for distributing your assets upon death. Winners should meet with a lawyer to draw up legal documents like a will, living trust, power of attorney and healthcare proxy. This ensures your money and property are handled according to your wishes when you pass away. Designating beneficiaries for assets like retirement accounts and life insurance policies also keeps them out of probate court upon death. Estate planning maintains control over your fortune even after you are gone while ceding some control without a plan could lead to family infighting.

Not creating a long-term plan

Without a clear strategy, lottery winners can quickly burn through their winnings once the initial thrill wears off. Creating a long-term financial plan is essential to making the money last and generating steady income streams for your future. This includes setting specific budgets, financial goals, investment plans and personal aspirations for how you want to manage your wealth. You may want to create trusts for your children, give more to charity, start businesses or generate enough investment returns to fund your dream retirement. Mapping out your vision and concrete steps to get there ensures your winnings provide for your family for decades rather than years. Discuss your desires with your financial team.

Raising children spoiled

For winners with families, avoiding raising spoiled children is crucial. Coming into an enormous amount of money can warp kids’ values and motivate them purely by greed. Experts suggest that if you plan to share money with your children, instill in them the importance of working hard for earnings and give them a solid work ethic. Allow them access to funds incrementally only after they have shown responsibility, not all at once when they turn 18. Make them earn big-ticket items through good behavior, not just buy them luxury items anytime. Limiting their access teaches them to work hard and spend modestly. Leave trusts in your will but require benchmarks to be met before they can draw money. Raising unspoiled, productive adults starts with parenting and age-appropriate financial guidance.

Quick answers to questions:

What are the main mistakes lottery winners make?

The biggest mistakes lottery winners make are:

– Not seeking professional financial advice
– Going on big spending sprees without a plan
– Not planning for taxes
– Announcing their win publicly right away
– Not paying off existing debts first
– Putting money into risky investments
– Being overly generous with gifts and handouts
– Neglecting estate planning
– Failing to create a long-term financial plan
– Raising spoiled children

Why is it important to get professional advice?

It’s critical for lottery winners to get professional advice because managing millions of dollars requires expertise most people don’t have. A financial planner, accountant and lawyer can help navigate investing wisely, minimize tax burdens, create a smart budget and avoid common pitfalls. Doing it alone without experience often leads to disastrous outcomes.

How much in taxes should winners plan to pay?

Lottery winners should immediately set aside up to 50% of their prize money to cover federal and state income taxes. Exact percentages depend on jurisdiction but taxes can eat up nearly half of winnings. Accounting for this early prevents a huge tax bill you can’t cover later.

How can being too generous backfire?

Giving large sums of money to friends and family members can damage relationships when people become dependent on handouts and constantly expect more. It can enable bad habits in others and put winners under pressure. Experts suggest making people earn money rather than just receive gifts, which leads to healthier outcomes.

What are good ways to invest lottery winnings?

Smart investments for lottery winnings include diversified, low-cost stock index funds, bonds, real estate and retirement accounts. Work with a fiduciary financial advisor to create a customized plan based on your risk tolerance. Avoid get-rich-quick schemes or highly volatile holdings.


Winning the lottery can change your life in an instant but requires caution and planning to avoid catastrophe. While coming into an enormous windfall may seem like only good news, if mismanaged it can lead to bankruptcy, lawsuits, estranged relationships and destruction. By avoiding common mistakes like spending recklessly, making poor investments and failing to plan, winners can make their prize last for decades and create fulfilling lives of financial stability. Just remember—-take it slowly, keep it private initially and assemble an experienced team of advisors you can trust. With the right discipline and advice, a lottery fortune can set you up for life.


Mistake How to Avoid It
Not seeking professional advice Consult financial planner, accountant, lawyer to manage windfall
Going on spending spree Create budget plan, set savings goals, spend reasonably over time
Not planning for taxes Immediately set aside up to 50% of winnings to cover tax liabilities
Going public right away Keep win private for 6+ months until you have a plan
Not paying off debts Make debt elimination top priority before spending on anything else
Putting money into bad investments Vet all investments thoroughly, diversify holdings, avoid get-rich schemes
Being overly generous Be cautious about large gifts, pay others’ essentials directly instead of cash
Ignoring estate planning Meet with lawyer to create will, trusts, power of attorney documents
Not creating long-term plan Map out detailed lifelong financial goals with guidance from advisors
Raising spoiled children Instill strong work ethic, limit access to funds, tie payouts to achievements