The odds of winning the Powerball are 1 in 292 million. That means that if you bought 10 tickets every single week, it would still take you 562,000 years to win the jackpot. Did you catch that? 562…thousand…years.
Let’s face it…it’s just not going to happen.
People are aware of the odds, and they know that they probably won’t win in a million years (funny, this phrase can finally be used literally!), so why do they still play? What makes them think that this is a good idea for them? And what might be a better alternative?
Getting Rich With the Lottery – It’s Just Not Happening
According to the recent Wired magazine article, “The Psychology of Lotteries“, people buy lottery tickets for two main reasons:
- It gives them a cheap high – and a chance at becoming a millionaire
- They lost all hope of becoming rich any other way
These two reasons are usually shared by one common socio-economic class…the poor. Believe it or not, but for those earning less than $13,000 a year, they spend an average of 9% of their income on lottery tickets! That’s $1,170 every single year!
The Likely Returns
So what do these individuals gain from their $1,170 yearly “investment”? According to the awesome chart provided by fivethirtyeight.com below, the average state gathers the lottery money, pays a little bit for administration, takes a healthy cut for themselves, and then they pay back only 50% of the pot to the “winners”.
So on average, the $1,170 “investment” each year will yield $585, or a loss of 50%. Then, the federal and state governments take another 45% of your “winnings” for taxes, which ultimately leaves you with $322.
What if I told you that I’m starting my own grandiose lottery? It’s called the Derek Lottery (catchy huh? ;)). You send me $1,170 and I’ll mail you back $322. I absolutely love the idea…for me, but for you it’s a pretty rotten agreement don’t you think?
It’s the same story between you and the government. They love the lottery because they win every time. For you though, it’s a constant losing preposition.
…But People Actually DO Win the Lottery!
“But Derek, there are regular people like me out there that win these huge sums of money, so it IS possible! I know the odds tell me I won’t win, but it could happen!”
Okay yes, it could in theory happen that you win a $500 million jackpot. The odds are not in your favor, but somebody does eventually have to win. And for those people that win…man they’re immediately on easy street and life couldn’t be better….right?
The Actual Lives of Lottery Winners
Believe it or not, but 70% of lottery winners end up bankrupt within just a few years of their windfall. It may seem impossible for those that win hundreds of millions of dollars, but here’s the basic story line:
- You win the lottery
- Your friends and family all think they deserve some of it
- You try to be nice and start “loaning” them money that they’ll never pay back
- You’re too rich for the friends you used to have (it’s just awkward now) and you didn’t earn your money so the rich crowd doesn’t respect you….which means you’re rich, but no one loves you.
- In the end, you either end up giving too much money away and go bankrupt or someone steals it from you via actual theft or repeated lawsuits.
Since you didn’t earn the money, you don’t appreciate it like you should, you have no idea how to grow it, and nobody respects you. Being a lottery winner typically leads to a pretty rough life. It’s not one that I would want, that’s for sure.
Getting rich with the lottery? No thanks.
The Best Way to Win With Money
You want to know the absolute best way to win with money?
- You work for it,
- save as much as you can,
- and consistently invest some of it for your future self.
It’s super basic, but unlike the lottery, it actually works. And typically, the odds are 1:1 that you’ll win.
Let’s go back to that low-income individual that only earns $13,000 but spends $1,170 on lottery tickets each year. Over the course of 50 years, this person will spend $58,500 and have absolutely nothing to show for it.
What if, instead, these low-income households invested the money into an S&P Index Fund (that’s yielded 11% each year for the past 70 years)? How much do you think their account would grow to? Check out the results below:
Ummmm… are you seeing the numbers that I’m seeing?!! $2.1 million dollars.
By investing just $58,500 over the course of their life – the exact same amount that they spent on lottery tickets – they would essentially “win the lottery” in the stock market. And they odds of this happening are sooo much better! Isn’t that just crazy?!
And, by earning the money over the course of many years, you’d:
- respect it more,
- be much less visible to the surrounding public (which means no lawsuits from strangers)
- steer clear of those lazy family members looking for a handout
In other words, you’d still have your millions AND you could be happy!
It’s Time to Ditch the Lottery
It has always seemed so harmless. After all, it’s just a few bucks here and there. But apparently those stray dollars can add up to millions over the course of your lifetime!
It’s time to stop playing around with the lottery. We all know it’s a loser’s game. Instead, let’s start investing. Not sure where to park your money? Check out Wealthsimple. You don’t need a lot of money to get started and you can add as little or as much as you want each month.
You’ve got no more excuses. Give up your gas station lottery picks and trade them in for a life of happiness and pride instead of pain and regret. You can do this. I know you can.
Are you done believing that you’re getting rich with the lottery?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.