Winning the lottery and subsequently losing it all is a tale oft repeated. It’s been dubbed the curse of the lottery – where if you beat the massive odds and bring home the loot, your chances of going bankrupt jump.

So with lottery mania taking over the US, ahead of Wednesday night’s mammoth $1.4 billion Powerball draw, I have a four step plan to help you deal with all that cash, if you win. (Note: I’m not advocating gambling, this is a hypothetical scenario if you’re predisposed to play.)

Step 1 – Buy a ticket

You have to be in it to win it. (Even if your odds are 1 in 292 million.) Accounting and economics professor, Victor Matheson, from the College of the Holy Cross in Massachusetts, has a theory that at $2 a ticket you could theoretically buy every combination for a measly $584 million and walk away with a profit.

However, there are a few hurdles there – you won’t have enough time to buy every number combination and if you do, it’s likely someone else will also have the same numbers as you which means you’ll have to split the winnings and with that, your profit disappears. There’s more on this theory over at CNN.

So if you buy 1 ticket or 1000 tickets, your odds only go up one at a time – but you’ve got a chance.

Step 2 –  Win Powerball

If your numbers come up, you’ve got to have a plan in place to deal with that sort of rapid cash influx. Before you even move off the couch to collect your winnings you need to hire an accountant, security team, business manager, publicist and a lawyer. But especially an accountant, even seasoned billionaire Mark Cuban recommends that.

Even rich people need to have a budget. Those who don’t, usually end up broke. Having an advisory team in place to help you figure out how to make the most of all that cash is one way to ensure you don’t blow it all.

As the adage goes “A fool and his money are soon parted.”  So don’t be a fool, get a plan, some solid financial advice and stick to it.

Step 3 – Choose between the lump sum or the annuity

Lottery winners can choose between taking all the cash upfront, usually at a discount, or receiving annual payments of more money spaced out over a longer time period. Deciding on which path to take will depend on your situation but getting an extra income source over the next 30 years or so isn’t a bad move, especially because it’ll help with cash flow.

You will need to consider the impact of tax. Winning a prize pool like this one will most likely thrust you into the top tax bracket. How much tax you pay will also depend on where you live and the taxation rules in that state. Yep, tax regulations are complicated. But Business Insider has broken down some of the lottery math here.

The smart thing to do in this situation is sit down with your accountant and investment advisor to determine what’s going to be better for you in the long run.

Step 4 – Live with Powerball

Once you’ve figured out whether you’re taking all the winnings upfront or spreading them out, you need to figure out what to do with it all. Can you afford to quit your job? Do you even want to quit your job? What sort of investments should you make so the money goes further? Are there philanthropic efforts you want to donate to? These are all questions you’re going to have to process once you win. And they’re not as straightforward as they seem, you’ll probably need to talk to your accountant and do some financial forecasting to figure out how the various scenarios play out over the longer term.

Tackling your lottery winnings with a sound financial perspective is one way to avoid becoming one of those cautionary tales. Even when you’re rich, you still need to budget.

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Source: Xero