5 lessons from lottery winners on how to manage a financial windfall

Whether it's an inheritance, legal settlement or another substantial bump to your income, take a lesson from these lottery statistics on what to do, and what not to do, with your small fortunes.

1. Don't spend it all on celebration.

It may seem obvious not to spend all of your newly acquired cash on a giant party, but one British lottery winner did just that, blowing the equivalent of over $13 million on what was essentially an eight-year-long party. While you may want to celebrate your newfound income, don't do it at the expense of seeing any real benefit from that money for you or your family.

2. Don't gamble on your windfalls, invest instead.

One New Jersey native won the lottery twice in the 1980s, but in hopes of getting a big return on her money, she gambled it all away. Instead of risking it all at the slot machines, consider investing your financial gains to earn a return in a much safer way. Work with a trusted financial adviser to make sure your money and financial future are being taken care of.

3. Be smart about gifting money.

A lottery winner from Alabama put her money into a corporation, 51 percent of the stocks for which she gifted to her family. Because the IRS considered her stock handouts a gift, she was taxed a large portion of her income. Don't make the same mistakes. If you receive a large sum of money, be aware of gift tax laws. It's still possible to help out your family and friends without incurring large penalties, but use the help of a financial adviser to make sure you're doing it right.

4. Give to charity but be careful.

A St. Louis woman won the lottery in 1993 and filed for bankruptcy in 2001 after giving away her entire fortune to educational institutions, her community and political causes. While giving money to the organizations you support can make a big difference for others, remember to do it with a plan in mind. Get the help of a financial planner to make sure you know how much you can afford to give and how you can continue giving for years into the future.

5. Work with an adviser so your money can last throughout your lifetime.

According to the National Endowment for Financial Education, 70 percent of people who come into sudden money go broke within just a few years. If you receive an inheritance or other financial windfall, talk to an adviser about how you can grow that money and maybe even pay it forward by creating an inheritance for your children as well. With careful planning, you can realize the effects of income throughout your lifetime.

With the help of a comprehensive financial plan, you can avoid these former lottery winners' mistakes. If you come into a large sum of money, be sure to consult your financial adviser, as well as estate planning, investing and tax specialists, to help you reap the reward of that income for years into the future.