12 Reasons Why Most Lottery Winners Recklessly Blow Through All Their Cash

Of course many lottery winners want to share their newfound fortune with their family and close friends. After all, these are the people who mean the most to them. The problem is that people can soon become greedy if they know someone has suddenly come into millions. Close acquaintances can demand more and more money under the pretense that they would be just as generous in the same situation. This guilt tripping can quickly deplete funds and leave the winner with far less than they started with.

One of the main reasons why lotto winners lose money and run into debt is due to their tax obligations. While some places will exempt lottery winnings from tax, the majority of countries will tax the prize money like any other earnings. This could mean paying income taxes as high as 40-45%. Things get worse in the United States, where many states have their own income tax, meaning that winners will have to pay twice for the cash they won. The biggest misunderstanding over what tax is owed comes from gifting money. A lottery winner who gives millions of dollars to their friends and family is obligated to pay gift tax, which can be up to 40% of the amount given away. This is why it is so important to get a competent tax advisor as quickly as possible.

Lotto winners might be surprised by how much money they actually end up with. The vast majority of lotteries allow players to receive their prizes in different ways, like taking yearly payments for a long time or accepting a lump sum. But the lump sum will often be dramatically less than the advertised winnings due to taxes; sometimes it's only around 60-75% of the actual cash prize. This can leave people will a lot less money than they expected.

A psychological behavior called mental accounting impacts the way people think about their money. It essentially puts perceived value onto cash and other valuable belongings. This means that lottery winners treat the money they have won from the prize draw differently than money they have earned, despite the fact that all the cash has the same intrinsic value. As a result, they are much more willing to be frivolous with lottery winnings, as that sum is seen as “free money” to be spent.

Imagine the feeling of discovering you've just won a life-changing amount of money. The happiness and excitement would be almost indescribable. This is exactly what happens to lottery winners, and often that spells disaster. Their joy makes them lose their grip on what is sensible, and they make rash decisions because they think nothing can bring them back down to earth. "People who were little, ordinary people all of a sudden become extraordinary," says Steve Lewit, the CEO of Wealth Financial Group. "They're euphoric. They lose all sense of reality. They think they're invincible and powerful. They think they're Superman."

The easiest trap to fall into after receiving a big cash windfall is to start spending on things you don’t need. With lottery winners who have won tens of millions of dollars, this urge to spend becomes even worse. It's not uncommon for winners to blow cash on extravagant items like luxury cars or gadget-filled mansions. While each individual purchase may not put a dent in the overall bank balance, they can quickly add up if the winners don’t keep a close eye on what they are spending.

A lottery winner often wants to move into a larger, more luxurious house and upgrade their car. They might even buy a yacht or other lavish vehicle. However, they may fail to consider the fact that these trappings will naturally incur bigger bills. Regular charges like utilities will rise in price due to the larger home, while that sports car will need a costly insurance policy. When a lottery winner overlooks these types of expenses, they can quickly lose control of their budget.

Not wanting to lose their winnings like so many others, many individuals seek to invest their funds to earn extra income. Unfortunately, too many lottery winners don’t put the proper research into these investments or don’t properly understand how they work. Their acquaintances might even take advantage of them by getting them to invest in their own business ideas or companies. This leaves them open to losing large amounts of money.

Despite the fact that sudden wealth can present financial complications, very few lottery winners seek professional help. The National Lottery in the UK speaks directly to winners about hiring financial advisors, but this is not a widespread practice around the world. Instead, most people tend to rely on the advice of those around them, leading to bad decisions and waste that could have been avoided if an expert had been consulted.

Lottery winners don't just spend – they might not have had much in the way of savings to begin with. Most people simply don't have experience with the tremendous wealth involved in lotto payouts. So, when a winner suddenly comes into millions of dollars, they are unprepared for the financial changes they need to make. One study found that winners only managed to save 16% of their entire winnings after receiving half of the amount.

The vast majority of lottery services are happy to let winners collect their prize anonymously. There are some exceptions, but in most cases a winner can avoid official publicity if they choose to. In the past, this more or less guaranteed you could keep it a secret if you suddenly were awarded millions of dollars. Things are a little different today thanks to social media. Most people will want to share the great news with the world. But even if the winner refrains from posting, that doesn't guarantee everyone they know will stay quiet. Once the story of that lotto win is out there, family members, friends, and onetime acquaintances might start coming out of the woodwork and demanding their share of the cash.

It may be cliche to say money can’t buy you happiness, but there's some truth behind the saying. The complications presented by winning the lottery can quickly make someone depressed or stressed. Having to manage huge amounts of money, put up with constant requests for handouts, and face resentment from their closest friends and family over the fortune they won has led many winners to squander their funds on alcohol and drugs. Some unfortunate winners have even committed suicide over the pressures brought about by their sudden wealth.