Dos and Don’ts of Playing/Winning a Lottery

  Winner winner chicken dinner!

 

The past month had several lotteries that went on for several weeks with no big wins, producing larger than normal jackpot amounts:

  1. Mega Millions  $393 Million
  2. Powerball  $758 Million
  3. California Superlotto $64 Million

This month all of them finally produced winners – and sadly didn’t include me or anyone in my immediate family. =)

  • Mega Millions  $393 Million (won 8/11)
  • Powerball  $758 Million (won 8/23)
  • California Superlotto $64 Million (won 8/16)

Whenever the lottery jackpots grow, we always see more news articles giving “advice” about the lottery. One very annoying article discusses if the lottery makes a decent investment, and concludes using mathematical analysis with an answer of no- with an expected return of much less than the price of the ticket. Of course this “analysis” is utterly ridiculous as no one in their right mind is considering lottery tickets investment grade products. There is a distinct difference between an investment product like CD’s/Stocks/Bonds, etc.. and a pure gambling product like lottery tickets. Lottery tickets have a very low probability of winning, but they are very cheap, and therefore present low cost entertainment as long as no one goes wild on a lottery ticket spending spree.

The reason for buying a ticket is simple- there are very few things that cost so little that give you a small chance to win so much money- a life changing amount.

So here’s some practical straight forward advice regarding lottery tickets-

1) I don’t normally play them because the odds are so high against anyone winning- it’s basically a free donation to the State. However, when the lottery jackpot builds up to true odds, then I consider it worth a ticket or two. Take the Powerball Lottery for example. The odds of winning the jackpot are 1 in 292 million. That means when the lottery jackpot is much less than that, it’s an extreme rip-off. What I mean is, if you manage to beat those massive odds and then win only $100 million, while that is a lot of money, your prize should be at least $292 million as those are the true odds you faced. Anything less is being cheated/short changed.

You could extend this further- since lottery jackpots are valued with a 20 – 30 year payout in mind, the actual present day cash value of the jackpot is a lot less. So if you want to be an odds purist, you should wait until the cash payout level reaches true odds. This would mean you only play very few lotteries since this doesn’t happen often.

2) Buy no more than a ticket or two. The odds are so high against you, that you have to assume you likely won’t win, so you shouldn’t be pouring lots of money into it. Just one entry will do. I wouldn’t spend more than one full ticket, which would be $5 for MegaMillions or $10 for Powerball. That’s more than enough. I’m cheap when it comes to lottery tickets- I usually just get one number entry. The person who buys 100 tickets isn’t too far from me on increasing their odds of winning: 100/(292 million) is pretty close to 1/(292 million).

 

The most likely case is you won’t win- here’s what to do in this case:

1) Don’t be bitter- and definitely don’t speak or wish bad things against the winner. I’m amazed and sad at how many toxic comments I see written online against the Powerball jackpot winner. It’s a poor reflection on a person who can’t be happy for someone else.

 

If you do manage to beat the odds and win- Congratulations!! You will now be entering a new chapter in your life. =) Here are the main points to consider:

1) Immediately sign your ticket and put it in a safe place and tell only the closest people you need to. You don’t want many if any to know about your newfound fortune- especially before you turn in the ticket!

2) Go to a good lawyer and incorporate yourself, and then have your lawyer accept the prize on behalf of the corporation name. Why? Because if you accept it yourself, you will be known to all, and a multitude of friends, family, and strangers will appear out of nowhere giving you sob stories of why you should bless them with some of your cash. Why subject yourself to that day after day after day? Not to mention your safety – you place a big target on your back with revealing your mega wealth. If you accept as a corporate entity, you can shield yourself from that. Some states won’t allow this, but you should definitely look into it.

3) Take time to plan and think before doing anything. This is a huge moment- no need to rush into any quick decisions. It’s best to immediately see a lawyer/financial advisor for some sage advice.

4) It’s imperative to realize that wealth is maintained by spending profits, not the principle. In other words, living off the income generated by the interest earned on your money, rather than spending down the initial jackpot. I was amazed to learn that a big portion of big jackpot winners wind up declaring bankruptcy within 7 years of winning. How can people spend so much money in so short a time? Answer- bad financial management – and over extending- thinking the money will never run out. We often see this type of blowup with sports and movie stars who made tens of millions only to wind up broke. This is why it’s so important to get a good financial manager before making any big decisions.

 

 

Until that winning day comes, let’s take a moment to think what those winning jackpots must be thinking having all that newfound wealth.    

I know that money can’t buy happiness, but it sure can end worrying about paying the bills. =)

 

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