Is it worth playing the lottery?

Why you shouldn't play the lottery

Updated on 11/24/18
7 minute read

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Header photo by Dylan Nolte on Unsplash

We all want to get rich FAST.

One common way is playing the lottery. The easiest money the luck can offer someone. The thrill of winning, that hope to change life around. 

But is it worth your money? Do you know the odds? 

Is it the best use for your money?

Read more to find out why you should never play the lottery and what you should do with your money to earn real money and gain a real fortune. 

 

I never play the lottery.

I will explain why. I will also explain what I do instead to get real money. 

Before we talk numbers, let us understand something about the lottery: Lottery is a regressive tax.

 

The lottery is a regressive tax

Progressive taxes are popular in western societies and are quite simple to understand. The more income you make the more taxes you pay.

Regressive taxes works the opposite. The less money you make, relatively, the more you spend. Regressive taxes hurts the weaker layers of society since they make less money in general. 

But if anyone can play the lottery, why it is considered as a regressive tax? Think of a simple example.

Who is more likely to regularly buy lottery tickets and spend tens of dollars every month on the lottery? A rich person or a poor person?

You guessed right. The poor person.

Lottery organizations are mainly financed by mid to low level income participants. 

 

The odds of winning the lottery

This part involves a little math. Don't worry if you are not a fan. It is simple and I will emphasize the points and highlights.

Are the odds important? every child will agree. 

Before I dive into the explanation, think about the odds of winning the lottery. Do you have any idea what are they?

 

There is a great explanation on the Lottery mathematics on Wikipedia. My explanation is based on it so you can feel free to read it thoroughly on Wikipedia or just follow my simplified explanation.

 

Let's assume a game in which in order to win, the participant needs to draw 6 numbers out of 49 possible numbers. 6 balls out of 49. 

Of course, the order is not important, meaning, if the winning numbers are 1 to 6 so: 1,2,3,4,5,6 wins and also 2,5,4,6,1,3.

To simplify furthermore, no Powerball is introduced. Only 6 numbers to win. Pretty standard.

 

The probability of winning calculation is pretty straightforward: 49! / (49-6)! 

49 is for 49 possible balls, 6 is for the number of winning numbers needed. The "!" represents factorial of a number. You can find it on any calculator. 

To make it even clearer, If in our game we needed to draw 5 balls out of 50, the formula will look like this: 50! / (50-5)!

Since we know that the order of the numbers drawn is not of any significance, we can add 6! to the denominator so the final resulting formula is:

Now the results: in our first game of 6 out of 49 the probability is 1:13,983,816.

I will let you decide if this it a fair chance or not. Maybe this will help:

The chances of getting bit by a shark are 1: 11,500,000.

The chances for a plane crash: 1:1,200,000.

The chances of being involved in a car accident: 1: 5500.

You get the idea :).

 

What you should do instead of playing the lottery

My favorite solution: Invest your money. YES, even if it is a few dollars every week.

Investments are not saved only for the rich. 

Why it is better? Compound interest. 

invest your money instead of buying a lottery ticket.

Photo by Mathieu Turle on Unsplash

A common case:

Let's assume you spend 10 dollars every week buying lottery tickets. That is 40 dollars every month. It seems like a little. 

Now, let's assume you are 60 years old and you buy lottery tickets since you are 20 years old. that is 40 years of monthly expenditure of 40 dollars

This is a reasonable, real-life scenario. 

 

If according to the example above, you would have invested the money in a mutual fund that yields 5% annually, today, you would have more than 60,000 dollars worth of investment! That is out of that little amount of money.  

S&P 500 index mutual funds are yielding around 10% every year for years now. 5% is not a magic number. You can adjust your investments. 

You can calculate your investments yourself. 

This calculation is based on Future Value calculation. 

 

FV = Future Value

p = payment. In our example: 40 dollars every month or 480$ yearly.

R = Interest. In our example 0.00416 monthly (0.4166%) OR 0.05 yearly (5%)

n = Number of periods. In our example, 480 months or 40 years.

You can find more information about Future Value here.

 

Other similar methods for wasting your money

In many countries, you can pay a monthly fee for the right to participate in a weekly/monthly lottery for much smaller amounts.

You can also find scratch-offs, machines gambling and what not.

For me, it is all the same. I avoid those money burners. I save thousands of dollars, real money I can live off.

 

Final Thoughts

Want to know how to win the lottery? In the long term don't buy a ticket and invest your money. That is a guaranteed win.

Think of your money as a resource. Think about the future. 

Don't waste your money on the lottery.