Tip 31: Stop buying lottery tickets

I still buy a lottery ticket occasionally- it is fun to imagine what I would do if I won. But I realize that the odds of winning are extremely small. Some people buy lottery tickets every week. This is like paying a tax that you don't have to pay. Considering the odds of winning, and the probability that you would have to share the prize if you win, the actual value of a lottery ticket is less than 50% of the purchase price. Buying lottery tickets is not a good financial strategy.

Let’s say someone spent $10 per week on lottery tickets for 40 years. That adds up $20,800 for lottery tickets. The person may get lucky and win millions of dollars, but the most likely scenario is that our gambler will win some small prizes, perhaps amounting a few thousand dollars over the years. But if our gambler were to invest $10 per week for 40 years, it would grow to $140,000 getting historical average stock market returns of 8%. Of course, there are some people who say that investing in the stock market is gambling too, but your chances of making money in the stock market are much, much better than winning the lottery. The 8% historical average stock market return includes the Great Depression and other downturns. If you can invest for the long term, you have a good chance to grow your money. Buying lottery tickets has an average return more like negative 50%.

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