A surprisingly large number of lottery winners find themselves in severe financial straits within a few years of winning. Now that I have mastered the concept of the time value of money, in the event that I am going to offer advice to somebody who won the lottery to help them avoid financial ruin, the first piece of advice I would give is to stay mysterious and take time to consider their financial alternatives as opposed to acting hastily off a triumphant high.
At this point, I would encourage them to acknowledge the lump sum amount payout as opposed to acknowledging the annuity plan because almost certainly, with the time estimation of cash, one may not see the whole winnings for his/her lifetime. There are three fundamental reasons to support the Time Value of Money hypothesis. First, money can be invested and procure revenue afterward, giving it potential acquiring power. Likewise, money is subject to inflation, consuming the currency's expenditure power over the long haul, making it worth a lesser total later (Vien, 2016). Finally, there is reliably the risk of not getting the dollar later on; however, if you hold the dollar now, there is no threat of this occurrence (as the adage goes; a bird in the hand is worth than two in the forest).
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I would encourage the lottery winner to invest in a legal counselor, accountant, and financial advisor. A legal counselor would assist with any legal issues such as losing his/her assets to creditors that the winner may experience not far off. The accountant will help monitor spending and help to avoid sudden lifestyle changes. A financial advisor would assist with current and future ventures, ensuring the winner invests prudently and do not fall for investments he/she does not clearly understand or sounds too good to be true. (Vien, 2016) I would also advise the lottery winner to take care of the relative multitude of obligations, whether it is a credit card obligation or a mortgage. The rate of return equals the interest rate on a loan.
References
Vien, C. L. (2016, January 14). Avoid these mistakes when you hit the big jackpot. Journal of Accountancy. Retrieved January 20, 2021, from
https://www.journalofaccountancy.com/news/2016/jan/lottery-winner-mistakes.html
