Managing Your Finances Even If You Didn't Win a $1.3B Lottery Jackpot
Well, it wasn’t me. I, like most of you, remain unburdened by the curse of a $1.3B windfall from the Mega Millions jackpot drawing last week.
To the winner in Illinois, Congratulations! I have some advice. For all of the rest of us normies that don’t have a massive jackpot, this advice is actually all the more important.
While most people will never win the lottery, a lot of us can expect a more moderate windfall sometime in our lives in the form of an inheritance. Over the next 25 years, between $30-70 trillion (with a T) will be transferred from the Baby Boomers to younger generations. While Gen X will be the primary beneficiary, Millennials can also expect to receive a significant wealth transfer.
Whether you have an inheritance, a lottery prize, or some other windfall coming now, later, or not at all, treating your finances like someone who does will benefit you in the long run.
Getting and Staying Organized
The simplest starting point for constructing a strong financial foundation is understanding your cash flow, both in and out. It doesn’t matter how much money you make or how much money you have. If you have more going out than coming in, you are sitting on quicksand. Once you understand both sides of your personal ledger, you can adjust expenses, saving, and investing according to your goals and needs.
Depending on your current location, employment, and income situation, you will have certain resources and tools at your disposal. For instance, you may have access to a 401(k) with an employer match or an HSA for medical savings. Maybe your state offers a tax deduction for 529 college savings plan contributions (not all do). If you are managing high-interest debt payments or student loans, can you refinance or consolidate your loans? Taking stock of how to optimize your situation will allow you to properly build a hierarchy for how best to distribute your money to each necessary expense or savings goal.
Take care to define a rules-based approach to your savings and spending plan. Most importantly, write it down. You want to be able to keep yourself honest and give anyone else who needs to know the blueprint and reasoning behind your plan (this will come in handy later).
Think carefully about not only what you want today, but what you will want years and decades from now. You want to use your money as much to buy freedom and security as you do to buy objects and experiences. Consider all the risks you want to avoid and pair them with a method to secure your and your family’s future.
Inflation? Investing for long-term growth.
Premature Death? Life insurance
Loss of income due to injury? Disability insurance
Unexpected costs or liabilities? Emergency fund and umbrella insurance
Consider what is most important to you. Everyone may rank their risk factors differently.
Don’t plan for Future You to be wiser than you are now. Plan to structure your financial life in a way that will minimize mistakes.
Money is like water, it flows down to the lowest point it can reach. The best way to keep your money safe and growing is to create barriers to spending that will protect you from your lowest and baser desires. Most people are bombarded with thousands of advertisements per day. Eventually, we fold. Creating a distribution structure for income and fail-safes against impulses (or fraudsters) will protect you against the next viral must-haves whether it's in the form of a fidget spinner or a jetski.
Building a Team
Remember when I said your money blueprint will come in handy? That time is now.
Don’t hesitate to seek help from specialists who do this professionally. Attorneys, accountants, financial advisors, and insurance agents exist for the specific purpose of helping people manage and outsource very complex topics like estate planning, taxes, investing, and insurance.
One of the most stressful subjects for most people is their finances. Make use of the pros who can lead you down the right path and minimize your stress and anxiety along the way. An unbiased third-party can strip away the emotion and offer clear guidance on the options to achieve your goals.
Utilizing a single advisor or a team of professionals is one of the best ways to bulletproof your plan and minimize mistakes so you can actually enjoy your money. You earned it (or won it).