- Emily Irwin, who works for Wells Fargo Bank, advises lottery winners on how to invest their money.
- Without any guidance, it can be easy to make bad decisions and blow it all, she told Insider.
- These are her tips for what lottery winners should do to protect their winnings.
This as-told-to essay is based on a conversation with Emily Irwin, senior director of advice for Wells Fargo Bank's Southern Division. The following has been edited for length and clarity.
Once you've won the lottery, it's still possible to blow it all.
We want to make sure that lottery winners protect themselves from having to start all over again and avoid that feeling of going through the process of losing everything.
To avoid a potentially catastrophic scenario, there are several things you can do.
Form a team of advisors
First off, you should form a team of advisors who work well together and also understand how to communicate with you, making it clear when you will have financial analysis and check-ins with them.
That is the absolute best way to set yourself up, not only for financial success but also for the pure enjoyment and joy that can come with having this life-changing experience.
I think having a diversified portfolio and reviewing it with your financial and investment advisors is very important.
Typically, we see some mixture of short-term available assets immediately, such as cash or cash equivalents, along with more traditional investments in stocks and bonds.
Know the risks of real-estate investment
Real estate is a very, very common investment for individuals.
While it can be an excellent investment, it can also come with some risks.
Consider if you will pay for it in cash, by financing, and how much of your overall portfolio it would constitute, and ask yourself if you have the cash flow to support it.
What I would say is to look at these decisions holistically because owning real estate brings carrying costs, including property taxes, maintenance costs, and potentially hiring property management companies – expenses you may not be used to having.
So be sure that it's not only a good investment, but that you can also sustain it in the long run.
Think about your debt
I also want lottery winners to be thinking about the other side of the balance sheet, which involves understanding the debt that you might have when you win the Powerball and any debt that you might accrue after.
So not just thinking about how you spend your money, but also making sure you're cleaning up the liability side of your balance sheet.
I absolutely believe that that's where the focus should be for two reasons.
Firstly, most individuals find peace of mind and financial stability in having a clean balance sheet, as well as some financial uptick.
Secondly, and most importantly, financial matters can be handled privately, preserving your anonymity if that's important to you.
Consider anonymity
One of the things we think about with mega-lottery-winners is making sure that they can collect their winnings in a way that keeps them anonymous and can, in turn, provide safety.
Making extravagant purchases, such as a multimillion-dollar home or quitting your job the next day, is a very public display of something changing in your life.
In contrast, cleaning up your debt, paying off student loans, and mortgages, and addressing revolving credit, like credit card or medical payments, can be done behind the scenes as you prepare for more public displays of how you may use your newfound wealth.
Make a sensible 'me fund'
I do think it's worth having a 'me fund' so you don't feel confined by having all these dollars on your balance sheet.
You don't want to overspend, which is possible, but you also don't want to feel like you're on a tight leash at every single step of the way.
How much you dedicate to a 'me' fund partially depends on how you're spending the rest of your assets and how they're invested.
But I will say that the best way to determine how much you dedicate to a 'me fund,' where you get to do whatever you want with the money, is through scenario planning.
Ask your financial team to plug in three to five different percentages or dollar amounts and see what the impact is, if any, on your annual, three-year, five-year, and 10-year-spend and net worth.
So, think, if I spend this and it literally goes 'poof' tomorrow, what does that do to my overall financial picture?
Avoid overspending
After winning the lottery, people see six zeros, nine zeros, or even 10 zeros in their bank account, and they think it's not possible for them to spend all of that.
But it is certainly possible if you buy five $50 million homes, and buy a private jet.
All of a sudden the expenditures get very, very, very large and it's amazing how all of a sudden those zeros start decreasing in your bank account.
It's easy to spend your money quickly, so spend it wisely.