02 Oct I won $50,000 in a lottery. How should I spend the money?
Q. I won $50,000 in a lottery. How should I spend the money?
— Winner, winner, chicken dinner
We’re glad you’re asking. Before you start spending, there are some important financial basics to consider.
This new money can help you catch up and put you ahead, depending on your current finances.
First, make sure you understand your tax burden.
According to the New Jersey Lottery, state law requires it to withhold state tax at the rate of 5% from any prize of between $10,000 and $500,000, and or 8% from any prize in excess of $500,000.
You should speak to your tax preparer to make sure you’re not in for any surprises with your tax return.
Once taxes are considered, take a look at your emergency fund.
Financial advisors generally say you should keep between three and six months of expenses in a liquid account. With higher interest rates, you can make some extra cash on your money, shop around for a good parking place for the money.
Next, take a look at your debt. We’re not suggesting you prepay your mortgage, but if you have high interest credit card debt, for example, you should pay off as much as you can. If you have student loan payments restarting, consider that, too, though the rates are probably better than what you’re paying on a credit card.
If you’ve already accomplished the goals of an emergency fund and paying off debt, you can start to think long term.
Consider putting a chunk of the funds in an IRA, for example.
And finally, after looking at your entire situation, use a little of the money for some fun. This unexpected windfall can help stabilize your financial situation, but you should still enjoy some, too.
Email your questions to .
This story was originally published on Oct. 2, 2023.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.