How many times have you thought 'If only I could just win the lottery...' probably lots right? Me too. Today we're going to visit the world of wishful thinking and talk about how much money you would actually need to win to significantly change your lifestyle.
A million bucks sounds like a lot of money (and it is) but's its no longer the kind of money that's going to let you quit your job and live the high-life. If you win $1,000,000 and invest the whole lot you should be able to get about $50,000 of income without touching your principal (based on a 5% rate of return). That's a decent amount of money to earn by not really doing anything but unless you're super thrifty you'll have to keep your day job. To put that in a perspective, the median household income in Canada (based on 2013 data) was $76,550. That extra $50k each year will give you some extra spending money but I can't see it really changing your lifestyle.
If we bump up those winnings to $5 million that's going to get you an extra $250,000 each year based on those same assumptions. Now we're talking, that's almost an extra $21,000 each MONTH. That's the kind of money that will let you splurge on some pretty fancy vacations, but it's also the kind of money that can get people in trouble if they're not careful. Think about it, if you win $5 million and then spend $1 million on a brand new house, $100,000 on a couple of new cars, give some money away to all those long lost relatives that come crawling out of the woodwork, decorate that new house, go on some first class vacations, etc. that $5 million is going to shrink pretty quick and you wont be earning nearly the $250,000 per year you were expecting. Even if that amount is cut in half, that could very well be less than what your household income was prior to the big lotto win...so about that job?
This happens all the time (well not all the time since not many people actually win the lottery), people win millions of dollars and end up broke in a few years.
Another scary thing (scarier actually) is how many people are actually banking on winning the lottery instead of actually planning for retirement. According to a study done by BMO in 2013, 34% of Canadians are 'relying on winning the lottery to fund their retirement'. Yup, 34%...that's 1 out of every 3 people!!! Does anyone actually know the odds of winning the lottery? Sorry to burst your bubble but the odds of winning the Lotto Max are 1 in 28.6 million and the odds for Lotto 649 are 1 in 14 million. The population of Canada is about 35.16 million people, if we just take the 34% who are counting on the lottery that would leave us with about 11.95 million. Based on the odds, not a single one of that group is going to win the lottery. How's that retirement planning looking now? Yikes.
Sure it's fun to dream about hitting the jackpot, never having to work another day in your life and going on endless exotic vacations but those daydreams need to remain as just that. Take the time to save and plan while you're young and you can reap the rewards after retirement...no lottery necessary. Then, if you do win yourself some money you wont be as likely to blow it all on a race car.