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How to Avoid Going Broke After Winning the Lottery

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

We’ve all heard the horror stories of people who play the lotto (and actually win!), only to end up broke (and substantially more miserable) just a few years later.

But some of us continue to cross our fingers when we buy a ticket, even when the odds of winning big are worse than getting killed by fireworks or being born with extra fingers and toes.

Fortunately, recent data suggests that lotto players’ hopes of life-long financial security are not entirely in vain. In a study published by the National Bureau of Economic Research tracking the trajectories of 3,362 Swedish lottery winners, researchers found that most large-sum winners still had more wealth 10 years later than they would have otherwise, and furthermore, reported greater life satisfaction.

(The National Endowment for Financial Education also recently set the record straight about the oft-cited, fictional statistic that 70% of lottery winners lose it all in less than a decade.)

Still, if you don’t want to wind up broke after winning it big, a little bit of planning might help.

Talk to professionals — and no one else.

Human beings are social animals. And if you win the lottery, chances are your first impulse is going to be to shout it from the rooftops.

But if you want to keep your money, you probably want to keep your lips zipped.

Because once your friends, family and long-estranged acquaintances hear that you’re rolling in dough, they’re all going to want a piece for themselves.

While many lottery winners do make gifts to family and friends, doing it on your own terms (and in your own time) keeps the control in your hands. If you don’t set boundaries and make a plan, things can go awry quickly — and when it comes to planning for millions or billions of dollars, you’re going to need some professional help.

You may also want to look into hiring a risk advisor who works specifically with wealthy clients, whose insurance needs differ substantially from most of society. If you get into a car accident or someone gets hurt on your property, your entire portfolio could be at risk — so you need to ensure you’ve got an appropriate amount of coverage.

Determine the payment strategy that works for you

Lottery winners have two choices when it comes to receiving their winnings: they can take a lump sum, or have the payment distributed over time in the form of an annual payment (also called an annuity).

And while there are good arguments for either option, there’s no cut-and-dry way to determine which is better for you.

Picking the lump sum

Obviously, many winners find the lump sum to be the most attractive option, because who hasn’t gabbed around the watercooler about what they’d do with a six- or seven-figure windfall? What’s more, if you invest a lump sum wisely, you might be able to earn even more cash in capital gains and appreciation.

On the other hand, it’s exactly that kind of watercooler fantasizing that could lead you to financial ruin. It’s all too easy to spend every cent of the money when it’s all suddenly in your hands.

Opting for the annuity

The annuity gives you the opportunity to spread out the payments over time and makes it much harder to squander the money all at once. And while every specific lottery program is different, annuity payouts often have an amount incentive (for instance, Powerball annuities increase 5% each year). It can be very comforting indeed to have a guaranteed source of income over the next few decades, even if it means you aren’t a millionaire right away.

Tax implications

From a tax perspective, there may be a significant difference — or there may not, depending on how much you win (and whether or not the tax rates change over time). Whether you pay the taxes all at once or each year as the annuity payments drop, a big chunk of the prize money is going to Uncle Sam, and other factors may weigh more heavily on your decision.

The best call is to sit down with your financial planner and do the math. But keep in mind that with the lump sum, you do at least know ahead of time the tax rates, whereas the annuity leaves you with more uncertainty as to how much of the prize you’ll actually receive.

Come up with a financial plan

While everyone can benefit from having a solid financial plan, it’s even more critical for those with millions or billions of dollars. When you feel like your pockets are endless, it’s easy to ignore your cashflow altogether… which is one reason so many lottery winners doend up spending it all.

While your financial advisor will walk you through the creation of a specific financial roadmap, here are some of the basic constituents.

  • Budget: Yes, you still need a budget, even if you’re a millionaire. And if you weren’t making a large income before you won, your existing budget may need substantial revamping.
  • Investing: What better job for your windfall than to be fruitful and multiply? A thoughtful investment strategy, be it for beginners or for long-time pros, can help make your prize grow over time, and a qualified financial advisor will be able to help you make smart choices. (Though keep in mind that no investment strategy is risk-free.)
  • Long-term savings strategy: Millionaires still need to plan and save for retirement if they want their wealth to carry them through the end of their lives, and they should still reserve some of their wealth as an emergency fund, as well. Although investing is a great way to grow your money, your emergency fund should be highly liquid — that is, easily accessible, perhaps stored in a high-yield savings account.
  • Charitable giving: Many high-net-worth individuals make sizable donations to existing funds, or even start their own foundations. And while charitable giving is a great way to get a tax break, the best gifts are for causes the giver is actually passionate about. (After all, most of those gifts are irrevocable, and whether it’s picking an existing fund or creating your own, there’s a substantial amount of legwork involved).

Avoid common mistakes

They’re your winnings, and you can do with them what you want. But for best results (and to maintain your millionaire status for more than a couple of years), avoid these common mistakes.

  • Splurging and impulse buys. Yes, of course, you’re going to want to buy something to celebrate. But unchecked spending can blow up your budget, no matter how big that budget may be. Before you go too crazy, ensure you have a plan in place to fund the essentials as well as the fun extras.
  • Immediately quit your job. As fun as it is to fantasize about a dramatic walk-out, you may not want to throw in the towel just yet. Even with a large sum of money, quitting your job could lead to unexpected consequences (like having to purchase health insurance through the marketplace, where your monthly premium might be hundreds or even thousands of dollars). Again: just make sure you’ve thought it all through!
  • Making financial decisions that can drain you. Malik S. Lee, CFP and founder of financial advising company Felton & Peel Wealth Management, warns prize winners against what he calls “endless decisions” — that is, purchases that have potential to cost a lot down the road. That could mean purchasing a luxury yacht or investing in an area business you’re unfamiliar with, but either way, beware of spending that begets more spending, and more after that.

The bottom line

Winning the lottery is an incredible stroke of luck — and despite the misfortune that’s befallen many lottery winners, it is possible to come out on top if you set up a solid plan. So if you see those winning numbers, go ahead and jump, dance or scream into your pillow… and then sit down, take a deep breath and get to work.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here

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Investing

How to Make Money in Stocks

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Putting money in the market is well-worn financial advice for a reason: Investing in stocks is one of the best steps you can take toward building wealth.But how, exactly, is that wealth built? How is money earned by purchasing stock market holdings, and what can you do to maximize the gains you make from your own portfolio?

How to make money in stocks: 5 best practices

The way the stock market works — and works for you — is as simple as a high school economics class. It’s all about supply and demand, and the way those factors affect value.

Investors purchase market assets like stocks (shares of companies), which increase in value when the company does well. As the company in question makes financial progress, more investors want a piece of the action, and they’re willing to pay more for an individual share.

That means that the share you paid for has now increased in price, thanks to higher demand — which in turn means you can earn something when it comes time to sell it. (Of course, it’s also possible for stocks and other market holdings to decrease in value, which is why there’s no such thing as a risk-free investment.)

Along with the profit you can make by selling stocks, you can also earn shareholder dividends, or portions of the company’s earnings. Cash dividends are usually paid on a quarterly basis, but you might also earn dividends in the form of additional shares of stock.

Micro-mechanics of how stocks earn money aside, you likely won’t see serious growth without heeding some basic market principles and best practices. Here’s how to ensure your portfolio will do as much work for you as possible.

1. Take advantage of time

Although it’s possible to make money on the stock market in the short term, the real earning potential comes from the compound interest you earn on long-term holdings. As your assets increase in value, the total amount of money in your account grows, making room for even more capital gains. That’s how stock market earnings increase over time exponentially.

But in order to best take advantage of that exponential growth, you need to start building your portfolio as early as possible. Ideally, you’ll want to start investing as soon as you’re earning an income — perhaps by taking advantage of a company-sponsored 401(k) plan.

To see exactly how much time can affect your nest egg, let’s look at an example. Say you stashed $1,000 in your retirement account at age 20, with plans to hang up your working hat at age 70. Even if you put nothing else into the account, you’d have over $18,000 to look forward to after 50 years of growth, assuming a relatively modest 6% interest rate. But if you waited until you were 60 to make that initial deposit, you’d earn less than $800 through compound interest — which is why it’s so much harder to save for retirement if you don’t start early. Plus, all that extra cash comes at no additional effort on your part. It just requires time — so go ahead and get started!

2. Continue to invest regularly

Time is an important component of your overall portfolio growth. But even decades of compounding returns can only do so much if you don’t continue to save.

Let’s go back to our retirement example above. Only this time, instead of making a $1,000 deposit and forgetting about it, let’s say you contributed $1,000 a year — which comes out to less than $20 per week.

If you started making those annual contributions at age 20, you’d have saved about $325,000 by the time you celebrated your 70th birthday. Even if you waited until 60 to start saving, you’d wind up with about $15,000 — a far cry from the measly $1,800 you’d take out if you only made the initial deposit.

Making regular contributions doesn’t have to take much effort; you can easily automate the process through your 401(k) or brokerage account, depositing a set amount each week or pay period.

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3. Set it and forget it — mostly

If you’re looking to see healthy returns on your stock market investments, just remember — you’re playing the long game.

For one thing, short-term trading lacks the tax benefits you can glean from holding onto your investments for longer. If you sell a stock before owning it for a full year, you’ll pay a higher tax rate than you would on long-term capital gains — that is, stocks you’ve held for more than a year.

While there are certain situations that do call for taking a look at your holdings, for the most part, even serious market dips reverse themselves in time. In fact, these bearish blips are regular, expected events, according to Malik S. Lee, CFP® and founder of Atlanta-based Felton & Peel Wealth Management.

So-called market corrections are healthy, he said. “It shows that the market is alive and well.” And even taking major recessions into account, the market’s performance has had an overall upward trend over the past hundred years.

4. Maintain a diverse portfolio

All investing carries risk; it’s possible for some of the companies you invest in to underperform or even fold entirely. But if you diversify your portfolio, you’ll be safeguarded against losing all of your assets when investments don’t go as planned.

By ensuring you’re invested in many different types of securities, you’ll be better prepared to weather stock market corrections. It’s unlikely that all industries and companies will suffer equally or succeed at the same level, so you can hedge your bets by buying some of everything.

5. Consider hiring professional help

Although the internet makes it relatively easy to create a well-researched DIY stock portfolio, if you’re still hesitant to put your money in the market, hiring an investment advisor can help. Even though the use of a professional can’t mitigate all risk of losses, you might feel more comfortable knowing you have an expert in your corner.

How the stock market can grow your wealth

Given the right combination of time, contribution regularity and a little bit of luck, the stock market has the potential to turn even a modest savings into an appreciable nest egg.

Ready to get started investing for yourself? Check out the following MagnifyMoney articles:

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here

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News

Cheap Home Remedies That Can Help You Battle Flu Season

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Pumpkin spice lattes, cozy scarves and a long-awaited chance to dust off your favorite pair of boots. No doubt about it, there’s a whole lot to love about fall.

But it’s got its drawbacks, too. Specifically, fall heralds the start of flu season — a nebulous time of year which exact dates vary, but generally begins to pick up in October and its effects can last as late as May.

Although the word is still out on how bad this year’s bout of influenza will be, if recent history has anything to say, we could be in for it. The New York Times reported the 2017-2018 flu season was the worst in nearly a decade, killing almost 80,000 people and hospitalizing thousands more across all age groups.

Of course, even if the flu doesn’t kill you, it can definitely make you feel like crud — and even affect your earnings. You’ll likely miss at least a few days at work, and there’s no telling how your medical bills could pile up if you experience flu-related complications. Pneumonia, for example, cost patients over $400 on average for outpatient treatment per a 2018 study by BMC Health Services Research, and over $10,000 for those who required hospitalization.

When almost a third of American households have less than $1,000 in savings, those prices mean an avoidable illness could become a financial catastrophe.

Prevention, then, seems the best medicine. But how can you go about it as cheaply as possible?

Dirt-cheap ways to ward off illness

Unfortunately, once you have the flu, there’s not much you can do about it except wait. Although prescription antiviral drugs can help shorten your illness, they’re most helpful if you start taking them as soon as possible.

So instead, give yourself an ounce of prevention in the following affordable ways.

Get a flu shot.

It may seem like a pain to get a flu shot each and every year, but it’s one of the most effective ways to prevent illness, said Dr. Adrian Cotton, medical chief at Loma Linda University Health in California.

And even though the flu shot isn’t 100% effective, any efficacy is better than nothing.

“It’s worth doing,” Cotton said, especially since the risk factor is so close to zero.

And these days, the flu vaccine is pretty easy to access, so it’s hard to find an excuse. The vaccine is covered under most insurance plans, and many grocery stores and pharmacies offer them, sometimes even incentivizing the deal with in-store discounts.

Wash your hands — and everything else.

Flu is a communicable disease, which means it spreads from person to person. And while you sometimes can’t avoid exposure (if, for instance, your kids come home sick from school), you can go a long way toward limiting your chances by paying close attention to your hygiene.

Along with frequently washing your hands, be sure to avoid touching your face, Cotton advised, especially if you’ve interacted with sick individuals. And make it a point to clean frequently-touched surfaces in your household like doorknobs with a disinfectant solution, including bleach or peroxide.

Live a healthy lifestyle.

While there’s no particular combination of supplements that will make you invulnerable to the flu, maintaining general good health can go a long way in bulking up your immune system. Eating a diet rich in fruits and vegetables is a good start, and superfoods don’t have to break the bank either.

How to ease symptoms if you’re already sick

Already sick? It’s tempting to run to the drug store and pick up every over-the-counter “cure” you can find.

But when it comes to easing your symptoms, it turns out the most affordable options are also the best ones.

Stay hydrated — and don’t worry, water’s fine.

Maintaining your fluid levels becomes critically important when you’re sick, and especially when you’re running a fever. But fortunately, you don’t need anything special to get the job done, Cotton said; water will keep you hydrated just fine.

The exception to the rule: if you’re feeling so unwell you don’t feel like eating or drinking, a product like Pedialyte or Gatorade could help you replace electrolytes. Otherwise, you’d be able to replenish them through your normal meals. (And hey, not all traditions are useless: classic chicken soup contains vitamin-packed veggies and protein, and that warm liquid will soothe a sore throat.)

Rest.

Lying in bed costs absolutely nothing, and it’s an imperative step toward helping your body fight off the flu. And while a pain reliever like ibuprofen can help take the edge off your symptoms, sleep can also do wonders to help you get better more quickly.

Ditch the miracle cures … unless they work for you.

“There’s never been any trials that show that any over-the-counter, herbal remedy actually works for influenza,” said Cotton, though you can certainly find anecdotal evidence to the contrary.

Thus, shelling out for fancy supplements is probably a waste of money, unless you’re convinced we’re totally wrong in this regard.

That’s because the placebo effect could make you feel better even if there’s no physical, causal effect between the “cure” and your abated symptoms.

So if you’re absolutely certain you feel better when you take echinacea or soak in Epsom salts, go ahead, as long as they’re not dangerous or prohibitively expensive.

The bottom line

At the end of the day, flu season is a bit of a crapshoot. You can take as many precautions as you want, but sometimes, you just get unlucky.

If that reality makes you curmudgeonly, that might actually be a mark in your favor — because aside from the steps listed above, one of the best things you can do to avoid exposure is to stay away from people.

Hey, it could be worse; at least sitting at home and binging your favorite fall TV shows is pretty darn close to free.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here