After the Mega Millions drawing on Friday night, one lucky person is $540 million richer — or $380 million if they choose the cash option. The Mega Millions jackpot is the seventh largest in history.
Of course, joining the ranks of Mega Millions lottery winners isn’t the only way you can land your first million. Whether you make a smart investment, come upon an inheritance or land a role in a big-screen film, you might someday find yourself with a padded bank account. If that happens, you need to know how to protect your newfound fortune.
Tips for Spending Your First Million Wisely
“When you are the recipient of any significant windfall, it is a good idea to step back and do nothing initially,” said Roger Wohlner, financial writer and advisor. Spending and enjoying the money is fine, he said, but it’s also important to make sure you have a defined plan for it.
Save for Retirement
One in three Americans have nothing saved for retirement, according to a 2016 survey conducted by GOBankingRates. For those who are putting money aside, 56 percent have less than $10,000 in retirement accounts.
If this sounds familiar, use some of your newfound money to save for your golden years. Open a retirement account if you don’t already have one or contribute extra to your existing savings.
Open a College Fund for Your Kids
For the 2015-2016 school year, tuition, fees and room and board at public four-year colleges average $19,548 per year for in-state students, according to the College Board. That average rises to $43,921 annually for private four-year colleges. Help your children earn a degree without digging themselves into debt by opening a college savings account for them.
Seek Out a Financial Planner
Wohlner advised seeking out a fee-only financial advisor to help put together a financial plan for your money. Of course, you need to exercise extreme caution when hiring someone for such an important task. Always opt for a certified financial planner (CFP) and conduct background research on the person to make sure they can be trusted with your money.
“You may want to seek the advice of an attorney as well to draft the appropriate estate planning documents for your situation,” he said. “The idea is to figure out what you want this money to do for you in terms of long-term goals like retirement or perhaps your children’s college educations.”
Create an Emergency Fund
You can’t plan for everything in life and sometimes the most unexpected incidents can put a major dent in your budget. If you need a major home repair, someone in your family incurs a few pricey medical bills or you find yourself out of work, you need an emergency fund to fall back on.
If your emergency fund isn’t sufficiently funded — or you don’t have one at all — use part of your first million to resolve this. Most experts recommend saving enough to cover at least three to six months of living expenses, so calculate costs for necessities and put the money aside.
Avoid Lavish Purchases
One major mistake people commonly make after receiving a large influx of cash is going out and buying all the things they’ve ever wanted, such as an expensive sports car, a new house or a closet full of designer clothes and electronics, Wohlner said.
“Like all things, moderation and control are the keys here,” he said. “You need to have this approach to this new money or you will soon find yourself broke, as do a surprising number of lottery winners.”
Don’t Give Handouts to Everyone
Just because someone asks for money doesn’t mean you should give it to them. “You don’t have to and you need to have a plan to say no to all of the newly found ‘friends’ a financial windfall can bring,” Wohlner said.
Whether you get your first million from the Mega Millions drawing or another avenue, exercise caution so you can enjoy financial security for the foreseeable future.
From GoBankingRates.com: What to do with your first million