Most of us dream of winning a huge lottery and not having to worry about anything else in life.
Lottery games attract people from all walks of life. However, Morgan Housel, in his book, Psychology of Money, mentioned that poor people in the US buy lottery tickets more. It might sound counterproductive as we might like to believe that saving and investing money would make better sense.
Morgan explains that for most people, it is the only opportunity to acquire things that most of us take for granted. They are paying for a fantasy we are already experiencing, so we cannot comprehend.
However, this also means that people buying these lottery tickets have not handled massive sums of money and might need help managing it accurately. So, it is no wonder that most lottery winners lose their win within a short time.
Hence, it is important to attain a few good habits before you jump into buying lottery tickets where you might win a decent amount of money.
The first step is to know your why. Once you have made the decision to buy the tickets, you must identify why you want to win the lottery. Do you want to win to pay off your debt or buy gadgets? This will help you to put things into perspective.
The second step is budgeting. Budgeting is important irrespective of your income level. If you can adhere to your pre-decided budget and make conscious decisions to cut unnecessary expenses, you are on the right path.
Investment options are the next thing that you can look at. Various options are available, depending on your individual needs, financial goals, and risk appetite. Understanding the types of investments can help you make intelligent, informed decisions tailored to your circumstances. So, before you buy a lottery ticket, it is important to know about the different investment and saving options that might help you to manage your wins later.
Now that you are aware of the things that you can do before buying a lottery ticket, let us look at some of the things that you can do after winning the lottery:
1. Don't tell everyone: It might be tempting to tell everyone about your impressive win. However, it might backfire as your distant relatives or friends might reach out to you seeking financial help.
This might put you in a tight spot. There is a high probability that you will lend money to people, directly impacting your overall cash with yourself.
2. Don't make money moves for at least a month: It might be tempting to buy certain things or to try to double your money. It is essential to take your time and not make any moves for a certain period. It is because you might take the wrong decisions and regret them later.
3. Determine whether you can rely on yourself to handle your affairs: The third point is to determine if you can rely on yourself to handle the gains. It is okay to seek help when required. You can look at hiring a professional to take care of your money if you cannot handle it yourself.
4. Don't quit your job: Quitting your job might be one of the worst things you can do after winning the lottery. It will be best to continue with your job and see how things pan out before taking any such big decision.
5. Consider the tax implications: You need to pay tax on the amount you won. Wins from lotteries and lucky draws above ₹10,000 are subject to a TDS of 30% under Section 194B. Cess would also need to be applied, bringing the overall tax rate to 31.2%. This rate would not depend on the individual’s tax slab rate.
This means that earnings from awards and prizes would still be subject to a 31.2% tax rate even if your income falls under a lower tax bracket. The market worth of the item obtained is considered if the prize or victory is received in kind. The item’s market value is then used to determine the tax.
6. Invest systematically or keep it in a bank till further clarity:If you are unsure what you do with your money, you can look at parking the money in your bank account until you have laid out a proper plan. In addition, instead of investing a large sum in one go, you can invest a specific amount of money at regular intervals. Mutual funds can be a good investment option for individual investors as you can invest in a fund of your choice every month through Systematic Investment Plan (SIP).
Conclusion: Winning the lottery is a long shot. But it would help if you were financially literate before entering this exciting world of luck and chance. Also, it is equally important to carry out smart financial planning after the win to turn your dreams into a reality.
Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.