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Wednesday, June 4, 2008

Beat the Stupidity Tax - Play the Lottery For Free

We've all heard the term "stupidity tax" as it applies to playing the lottery. You have better odds of being struck by lightning as you do winning the lottery, at least the big jackpot. I do applaud you lottery players for keeping my overall tax bill down a bit though. And of course, you can't win if you don't play is a slogan often heard around the lottery. Many of you play small amounts of money responsibly and get a bit of entertainment excitement out of it. This is reasonable and ok. Hey, I'm not here to chide you about wasting money on the lottery, I'm here to help you play for free!

Now that I have your attention, I want you weekly lottery players to please consider this scheme. Every week, cut your lottery expenditures in half. Yes, I mean in half. For example, if you're spending $4 a week buying two $2 tickets, then please just buy one ticket instead. Put the weekly $2 into a tax free savings account (TFSA) that will become available to you starting January 1, 2009. This amounts to $104 a year. Put the toonies in a change jar if you have to, and get it into the bank a couple of times per year. The more frequently you deposit it, the better. Invest this money in a low MER Canadian Index fund such as TDB900. If you're in another part of the world, use the equivalent investment for your country. Over the course of 15-16 years, this money will have grown (assuming 10% annual tax free compounding) to about $4000. This should now allow you to play the weekly lottery to the same level for free, for the rest of your life. It should earn about $400 per year, but the lottery will likely be more expensive to play by that point.

If you're spending $10 per week on tickets, then instead save $5 a week into your account. This is $260 per year saved. Over 15-16 years, you will likely have over $10,000 there. If instead of gambling at all (except through the low MER mutual fund if you consider that gambling) you invested the entire $10 a week, after 30 years you'd have over $100,000 in the account.

In my defense, I didn't say the free lottery play was going to be immediate! lol . And the use of the term free is a bit liberal, considering that it fundamentally is your own money that you're playing with. But you would have, in all likelihood, lost that money anyway, that's why I feel justified in using the "free" label. I just directed you to set it aside to build a future annuity to use to play the lottery.


Anonymous said...

I also love this entry as well, your explanations are down to earth and accessible to those of us who are challenged when it comes to financial lingo. Hey, one day when I can afford it, will be you be my accountant?


Jim Somerville said...

Thanks! I'm not an accountant although I do have a degree in Mathematics.