You just discovered you won the lottery. Congratulations! Even better, you’ve done the smart thing and googled for what to do if you win the lottery, hopefully before doing anything rash.

Now is the time to be very careful — the number of stupid things you can do greatly outnumbers the smart things. For example, did you know that you can accidentally lose all of the winnings depending on how you try to claim them? Luckily, this is the resource you need to follow to keep those lottery winnings.

Keep it Secret, Keep it Safe

You can tell people that you’ve won, but only do it after you’ve set yourself up legally to protect yourself and your winnings

If you don’t protect yourself first, you may be surprised to find people filing frivolous lawsuits against you. People might intentionally trip on your property just to sue you.

I know it’s hard, but you need to be silent. Listen to wise Ben Franklin: Three can keep a secret, if two are dead.

Scan, Photocopy, Backup

Keep the original ticket in a double layer of ziplock bags in an opaque envelope. No need for prying eyes to see what you have, or for a spilled coffee to destroy your fortune.

Before you do anything you need to make copies of that ticket. If you have a scanner at home, scan the ticket and keep it in a encrypted folder on your computer or on a remote backup site.

After you’ve done this, go to your local photocopy place, (assuming you don’t have a copier at home) and make several duplicates.

For the love of God, double check the photocopier before you leave. You don’t want to have discarded copies in the waste basket or the original ticket in the photocopier.

Don’t Do Anything Stupid

Now comes the hard part: don’t do anything stupid. Take this to mean don’t do anything you wouldn’t have done before winning.

Don’t quit your job before you get the money. Don’t buy a flashy car or take a trip to Las Vegas. People will ask questions. People asking questions is not what you want.

Remember: your anonymity is your greatest asset. Guard it.

Get a Safe-Deposit Box

Even with copies of the ticket in hand and an encrypted copy on the net, you will find that you are suddenly paranoid. Keeping the ticket on your physical person or in your house is not only a bad idea, but it will make you become obsessive-compulsive about checking and re-checking the ticket.

What you need is a safe deposit box. There are about two million burglaries each year in the United States each year but only 25 thefts from safe-deposit boxes each year. If you think your winning lottery ticket is safer in your house, you are potentially making a million-dollar mistake.

Gather several papers to act as decoys and bring them, with the ticket to your bank to open a safe deposit box. If the bank teller ask what you want the box for, don’t say “For my lottery ticket”. Say your want to storing important, original documents.

Check That Deadline

Most lotteries in the United States have a deadline of 180 days — but some are sooner. Find out what the deadline is and put a big, red circle on your calendar.

You might think it unlikely that someone would take too long to turn in their ticket, but it happens regularly. In November, someone in Texas failed to claim their ticket for seven million dollars.

Don’t be the guy who shows up one day too late for his millions.

Open a Blind Trust

What you need to protect your anonymity is a blind trust. Hire a tax attorney to set one up for you. Once you’ve paid the attorney, he is legally bound to maintain your anonymity. It is through the attorney, and the blind trust that he sets up, that you will contact the lottery board in your state and collect the money.

By collecting the winnings through a blind trust, the lottery board will never know who you are and thus can’t splash your name on the news. The lottery commission wants to put you on the news because it sells them more tickets, not because it does you any good.

Opening a blind trust is vital if you are a minor who won the lottery. In some states, if a minor is given a winning ticket as a gift, and they walk into the state lottery office to collect the money, the ticket is instantly invalidated.

Take The Lump-Sum Payment

There is a lot of argument on the Internet about whether to take the lump-sum payment or the annual payments. Don’t listen to any of it: just take the lump-sum payment. You’ll be better of financially and psychologically.

If you don’t believe this is the better option, take a listen to this This American Life story on lottery winners.

Ask Yourself: Is it Really Enough to Quit Your Job

It may sound ridiculous, but a million dollars isn’t a lot if you’re thinking about not working for the rest of your life.

Income tax will take away 30% to 50% of your earnings depending on the jurisdiction. If you just won a million dollars, you’re not a millionaire. You’re a hundred thousandaire.

So, do you have enough money to quit your job? The answer is ‘yes’ if you can live on 4% or less of the post-tax money annually.

If you won $600,000 in the lottery after taxes, you’re looking at an annual, pre-tax income of $24,000. If you won a million dollars you’re annual income will be $40,000.

Hire a Financial Planner

Don’t hire someone who will ‘manage your money for you’. Your winnings, and maintaining them, are now the biggest responsibility of your life. If you don’t directly manage your money, don’t be surprised when your financial planner makes off with most of it.

A good place to start looking for someone to trust is Dave Ramesy’s recommended financial planners.

Once you’ve collected the money, pay off all your debts, any tickets or legal problems you may have. Set aside a year or two’s worth of expenses in a safe bank account to act as emergency fund.

Get Your Story Straight

Once you’ve collected the lottery winnings, people are going to wonder why you’ve quit your job. Have a simple story that doesn’t relate suddenly getting a windfall of cash. Tell people that you work ‘in computers on the Internet’ or ‘as a corporate consultant’ and leave it at that. If your story is boring enough most people won’t ask followup questions.

Have Fun

Now go out and enjoy the good life, you lucky bastard.

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Header photograph by Robert S. Donovan

Jonathan Clements was a columnist at the Wall Street Journal who’s been writing columns on personal finance since 1994. This April he wrote his last article called ‘What I learned from writing 1,008 columns’ giving his opinion on why you should bother with saving and investing. Here are his reasons:

1. If you have money, you don’t have to worry about it. This isn’t guaranteed. There are lots of rich folks who agonize constantly — and needlessly — about their finances. Still, if you save diligently, you should reach the point where money worries are relatively rare.
2. Money can give you the freedom to pursue your passions. Ideally, you want to spend your days engaged in activities that you find absorbing and satisfying, that you feel you’re good at — and where you feel you’re doing good.
3. Money can buy you time with friends and family. You don’t just need a reason to get up in the morning. You also need somebody to come home to at night.

This advice should be given to everyone before they’re allowed to earn their first dollar.

[Click here to read ‘What I learned from writing 1,008 columns’]

[Click here for Jonathan Clements’s personal website]

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Header photograph by sharaff

Story via get rich slowly

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David Bach, in The Automatic Millionaire warns us of the Latte Factor: how small, daily costs add up to big expenses. Whenever the Latte Factor is mentioned, shocking numbers always follow: for example, if you don’t by a $4 cup of coffee daily and instead invest the money, after thirty years you will have $263,000. Bach has a Latte Factor Calculator on his website where you can adjust the numbers to your situation.

While the mathematics of the Latte Factor are undeniable, thinking only of the long-term investment value of every cent leads to an aesthetic life. There was an interesting rebuttal to the Latte Factor in the New York Times on enjoying the small expenses in your life.

While I love planning for the future, I’d like to propose a compromise between blowing money on lattes and never doing so:

The Latte Tax:

Each time you buy yourself that small thing that you enjoy, like a Latte, tax yourself. Put an equal amount of money toward the most fiscally responsible, long-term goal you can achieve. Appropriately I started writing this article from Starbucks. I paid £4.10 for a Latte and blueberry muffin. When my bank statement arrived, I saw the Starbucks line and transfered £4.10 into my retirement account.

I like going to Starbucks and other coffee shops. They are an important part of my working routine. If, at the end of each month, I tally the Starbucks lines on my debit card statement and add that amount to my retirement account I can enjoy what I like and plan for the future as well. Tax yourself and enjoy life’s small pleasures, guilt free.

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Header photograph by journeyscoffee

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