Friday Finance: what to do if you win the lottery

Many imagine that a big win in the lottery would mean an end to all their problems.

History suggests otherwise.

A Duck Duck Go search is littered with cautionary tales of winners who either lost it all at astonishing speed or ended up worse off than before they got lucky.

Consider the Michigan man who won $30K and spent $20K of it on a gold chain, which he wore around town. Shortly after, thieves relieved him of his burdensome bling.

Or read about another Michigan winner, this time of $2M:

Fick was . . . featured on the TLC program “Lottery Changed My Life” alongside his son, Jeff. The pair tore down his house and built a new one, purchased a new car, and spent big dollars on items such as fireworks, a slot machine and swords.

. . . Fick still collected food assistance via the state’s Bridge Card program . . .

By 2012, Fick was sentenced to jail time after separate drug and firearm convictions. He had reportedly lost all the money he had won less than two years earlier.

. . . police are asking anyone with information on the lottery winner now found dead to call them at 989-839-4719.

There are plenty more horror stories.

The risk is the same as for financially illiterate people who earn a high income. From my book:

. . . if you have not learned the lessons in this book, that extra income will disappear like a sidewalk puddle on a summer’s day and you will continue to experience financial distress.  You’ll still live beyond your means because expenses tend to rise with income.  You’ll risk being wiped out because you lack an emergency fund.  You may lose everything if you don’t understand the fundamentals of investing.

A high income without financial know-how is like a V8 engine in a car with bald tires.

Don’t believe me?  Consider the case of Michael Jackson.  He earned an income we can only dream of, but he died $400 million in debt.  Mike Tyson earned that much over his career, but by 2003 he was in serious debt to all sorts of people.  He is reportedly now solvent again.  Other rich, famous people who have had to declare bankruptcy include actors Stephen Baldwin, Burt Reynolds, Gary Coleman and Kim Basinger; musicians 50 Cent, Marvin Gaye, Meatloaf and MC Hammer; and US President Ulysses S. Grant.[i]

You want one more?  I can give you one more.  Consider the great novelist Mark Twain.  He wanted to be rich throughout his career, and he made a fortune several times over, but each time he managed to lose it through one bad investment or another.[ii] 

What should you do if you have a big win or otherwise receive a windfall?

The only special advice would be to keep it quiet if possible. Better to distribute your generosity on your own terms than have every ne’er-do-well relative and opportunistic grifter blow up your phone.

Aside from that, you should follow the same Ten Steps as everyone else in order to manage your money:

1. Don’t get into (more) debt

You wouldn’t believe how many lottery winners end up borrowing money and fall into massive debt. Don’t do it. A big win means you should never borrow for anything, ever again. That alone would be an excellent use of your money.

2. Make a frugal budget

If it’s a really big win then your budget might not have to be so frugal after all. However, many people blow their winnings because they think the amount is infinite. You can easily spend a million bucks in a few years if you’re not careful. See the stories above

Make an annual budget based on 4% of your wealth, to be increased in line with inflation. For example, if you win $1M, you can safely spend $40K in the first year. That should make it last.

(A one-off home purchase would also be a reasonable use of the money, but not a mansion whose upkeep and taxes you will not be able to pay. Anyway, hold off on this until reading all the steps.)

3. Save an emergency fund.

If you’ve won the lottery, you could easily set up an Apocalyptic Emergency Fund. Suggestion: 6 months’ expenses (based on the budget created during Step 2) in a high-interest account plus a few years’ expenses in bonds.

4. Get out of debt

If you have any debt, you’d be off your rocker not to pay it when you suddenly have all the money in the world to do so. This will save you a fortune in the long run.

5. Increase income

You know what? Unless you want to use your winnings to fund up-skilling or start a business, you could skip this step. Up to you.

6. Protect what you’ve got

Figure out what insurance you may need, i.e. on your new home or gold chain, and beware of risky entanglements that might endanger your newfound wealth.

7. Plan your life

Now that you’ve got the basics sorted, figure out what you want to do with the rest of your life and how much it will cost. Remember, a million dollars will not buy everything. You need to prioritize.

8. Invest wisely

Read up on investment. Note that no book tells you to buy the most expensive gold chain you can afford and wear it around town.

9. Get advice

Find an independent, fee-based, certified Financial Planner to help put your plan into action. You will have done your own research first as per Step 8 so that no one pulls the wool over your eyes.

10. Record and reevaluate

Keep track of your money. Go over your affairs once a year and change whatever’s no longer working. Don’t be one of those lottery winners who’s shocked to discover one day that it’s all gone. If you must be profligate, at least see the end coming.

Final words

Achieving financial freedom is largely the same for lottery winners as it is for everyone else. Dare assume your income is too high to bother with the Ten Steps and you’ll end up like those poor fellows in Michigan.

A fool and his money are soon parted, but even the not-too-bright can hold on to their fortune through a rudimentary understanding of personal finance.



  • This article provides general information. It does not take into account your personal circumstances and is not intended to influence readers’ financial decisions. Get your own, professional advice.


  1. Historic Paperclip Czar · February 4

    You could use it to escape the abomination of desolation or Clown World.
    My favorite one on that broke a year later or how lotto changed my life featured a back yard crash up derby track, dirt bikes and ATV jump ramps course with a 24-7/365 party with music and groupies.


  2. dickycone · February 4

    “The only special advice would be to keep it quiet if possible.”

    A coworker of mine, one of those guys who really, really likes talking about himself, once bragged to me that he and his wife had saved up a million USD contracting in Iraq and Afghanistan for a few years. This is a guy with children and grandchildren. I was amazed at his naiveté, but it’s also one of those things I always think of when people go on about how terrible the US is. You can still be a moron who brags about his million dollars to people he barely knows here and be fine. I hate to think about what would happen to someone who goes around bragging about his wealth like that in my wife’s country. The same probably goes for most of the world.

    I feel like I could win a few million dollars and NOT end up like most lottery winners. I’m well aware that a few million USD would be nice to have but is nowhere near limitless wealth. It would be very easy to blow that amount in a few years or even less time.


  3. freemattpodcast · February 5

    Find someone that manages money for the big earner/legacy money folks. I had said that you could live comfortably with 200,000 (U$) a year if you are smart. The rest could be an estate or a charitable trust, if you arent shit for brains like Getty’s/Vanderbilt’s descendents.


  4. Kentucky Gent · February 6

    If you don’t earn your wealth through hard work, up-skilling for higher pay, frugality, and learning how to invest, you are like a boxer who gets a title shot in his first pro fight – you just are not up for the contest.
    I heard about one lottery winner who got a year behind on his payouts. Each annual check went immediately to service his debt, and he borrowed the next years’ payout right after that. What a horrible situation to be in.


  5. Pingback: Friday Finance – money milestones | SovietMen

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