What to do if you win the lottery (and even if you don’t)

How many times have you said “If I win the lottery, I’ll be SET!.”   Well, the likelihood of you hitting the big number is slim to none.  But you can set yourself up for an awesome retirement if you just plan ahead.  This article on Vanguard’s website is a great resource on how you can start taking steps toward comfortable older age.

Let’s start by stating the obvious: You’re probably not a Powerball jackpot winner. In fact, you’re probably not going to win any lottery, ever. (Sorry.)

But what if you did? Or—more realistically—what would you do with a bigger-than-expected year-end bonus, tax refund, or inheritance?

If you’re the beneficiary of a significant financial windfall, start by asking yourself 3 simple questions:

1. Is my emergency fund sufficient?

Having an adequate emergency fund means you’re less likely to need to borrow money or overload your credit cards to cover essential expenses if you lose your job, face a major illness, or run into other financial hurdles.

How big should that emergency nest egg be? Experts recommend having enough money set aside to cover 6 months to a year of daily living expenses. (Generally, where you fall within that guideline should depend on the security of future income sources, like your job.)

If your emergency fund is on the small side, consider using your windfall to bolster it. Even if you think it’s adequate, beefing it up with just a portion of your windfall can’t hurt. After all, receiving an unexpected sum of money may enable you to enjoy (and become accustomed to) the finer things in life, and consequently, the amount you’ll need to cover 6 months to a year of your daily living expenses could go up.

Make sure your financial plan can keep up when life happens »

2. Am I in debt?

Unfortunately, living with substantial credit card debt has become the norm for many Americans. On average, each U.S. household has a $6,802 credit card balance, according to cardhub.com.

If you’re carrying large credit card balances, come up with a plan to pay them off. Make a list of all your debt and identify the card that carries the highest interest rate. (Need help? Use this credit card roll-down calculator.) Continue to make the minimum payments on all your outstanding balances, but put extra money toward the card that has the highest interest rate.

Sure, there are more exciting ways to allocate a windfall, but the satisfaction of freeing yourself from debt is a force to be reckoned with.

Tips on repaying your debts »

3. Am I saving enough?

Once you’ve addressed your emergency fund and your debts, it’s time to take a close look at retirement and other financial needs.

Saving at least 12% to 15% of your annual income for retirement (including employer contributions to retirement plan accounts) is a good rule of thumb for most of us to follow. If you’re saving less than that, give serious thought to setting more money aside today. Even a 1% increase in your annual savings, or an extra one-time contribution, can add up over time.

An extra $1,500 contributed at age 50 can more than triple in 30 years:

An extra $1,500 contributed at age 50 can more than triple in 30 years

Note: Amounts are in today’s dollars and assume a 4% rate of return after inflation.

Source: Vanguard

And while you’re at it, don’t forget about your other long-term goals, like saving for college.

How to juggle multiple financial goals »

The bottom line: Even if you never hit the jackpot, any financial windfall can be put to good use for your financial future.


  • All investing is subject to risk, including the possible loss of the money you invest.

Source: Vanguard


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