Dave Ramsey on The Ramsey Show <\/p>\n
A Chicago woman recently called into The Ramsey Show with life-changing news: She and her husband had won US$1.375 million from a scratch ticket. What started as a quick stop at a local gas station turned into a financial turning point.<\/p>\n
\u201cWe\u2019re still in shock,\u201d the caller admitted. Her husband randomly picked up the ticket three weeks ago and realized it was a jackpot winner. They chose a lump sum payout of a little over US$400,000 after taxes (lottery prizes are subject to federal and state taxes where applicable).<\/p>\n
Luckily for us Canadians, lottery winnings are tax-free. Still, the after-tax amount of this caller’s win was significant, and Dave Ramsey advised consulting a financial professional before spending a dime.<\/p>\n
Lottery prizes are not taxed by the Canada Revenue Agency.<\/p>\n
If you win $1 million, you actually keep the full amount. But there\u2019s a big catch:<\/p>\n
The winnings are tax-free, but the income they generate is not.<\/p>\n
Suppose you invest the money and earn interest, dividends or capital gains. In that case, those earnings are taxable unless they\u2019re in registered accounts like a Tax-Free Savings Account<\/a> (TFSA) or a Registered Retirement Savings Plan<\/a> (RRSP).<\/p>\n Even though you\u2019re not paying tax upfront, its still important to hire a financial planner or tax professional so you don\u2019t end up with an unexpected tax bill later.<\/p>\n \u201cThe first thing we’re going to do is get a tax professional,\u201d he said. \u201cIt’s going to be worth a thousand dollars, or whatever it is, five hundred bucks, to get some professional tax advice. That’s the first thing you do.\u201d<\/p>\n The caller shared their plan to clear their debt after paying taxes.<\/p>\n The couple has about US$31,000 in credit card debt and a mortgage with a balance of around US$137,000. With cars paid off and a modest household income of around US$123,000, Ramsey\u2019s advises eliminating high-interest consumer debt immediately.<\/p>\n Here’s how to get started:<\/p>\n Pay off credit cards first: Canadian credit card interest rates average around 19.99% to 23.99%, making them one of the biggest obstacles to building wealth.<\/p>\n Consider paying off your mortgage next: While mortgage rates are generally lower, eliminating this obligation can free up cash flow and reduce long-term risk.<\/p>\n Story Continues <\/p>\n Read more: I’m in my early 60s and I want to retire in 3 years or less \u2014 what are 5 financial boxes I need to check right now?<\/a><\/p>\n The couple\u2019s next step is to make the remaining money work for them. Ramsey suggests connecting with a vetted advisor to craft an investment plan tailored to their needs.<\/p>\n For Canadian couples in their early 40s, experts recommend a balanced investment strategy:<\/p>\n Moderate portfolio (40\u201360% equities): A good tip is to invest in ETFs or index funds<\/a> within a TFSA or RRSP to grow your portfolio over time.<\/p>\n Bonds and fixed income (30\u201340%): Use Canadian bond ETFs, GICs<\/a>, or other fixed-income products to create a stable and balanced portfolio.<\/p>\n Cash or short-term holdings (10\u201320%): Have funds ready for near-term goals like home renovations, travel, or other planned expenses.<\/p>\n