It’s time you know Jack.
It’s time for the annual Workingpersons’ Lottery here in the US of A!
What will you do with your “winnings”?
Depending on the study you cite, 60–80% of American adults will purchase a lottery ticket at some time in their lives. Each with hopes of guessing the correct sequence of numbers or scratching just the right silver shape. Each dreaming of what they will do with their winnings. A nicer car, perhaps? A bigger home, maybe? Vacations, jewelry, gizmos, gadgets… You know the drill, odds are you are, have been, or will be one of these people at some point in your life.
Well, at some level, I suppose it is.
Odds are much better you have participated in this “lottery” not just some time in your life but within the past year. If you are an American citizen, odds are 8.4 in 10 (84%) that you participated between January 1 and July 25, 2019. And the odds are even better that you’ll participate again during 2020.
So, if you were one of those who partook in the $1.6 billion payout in 2019, what do you have to show for it?
So Rich, So Broke
It’s surprisingly hard to find a good statistic on the percentage of people who go broke after receiving a financial windfall, like winning the lottery. (The National Endowment for Financial Education disavows the 70 percent commonly attributed to it, stating that it “cannot provide a statistic regarding financial windfalls and bankruptcy at this time…”)
But the anecdotes remain, and they support my argument so, I’ll use those. #honesty
We’ve all heard the stories of athletes/actors/musicians who, despite earning millions, end up broke. I won’t name names, but a quick Google search will provide you with enough juicy gossip to last the whole year thru.
Those of us accustomed to living on paychecks with fewer commas, often shake our heads after reading one of these stories and say something like, “What an idiot! How could you have all that money and end up broke?!”
Then we pontificate about the difference between those “idiots” and our, obviously much brighter, selves. “If I had that kind of money, I would never want for anything. My kids would never want for anything. My parents… My dog… favorite charity… would never want for anything.” Sound familiar?
So Broke, So Rich
What then is the difference between someone who pulls in seven-plus figures and the rank and file who dream about reaching six?
I had the good fortune to meet a “millionaire lottery winner” when I was in college, though I didn’t realize it at the time (the lottery winner part, that is; he was a very nice person, so the good fortune part was self-evident). I don’t remember the exact year, but it was sometime around 1997/98, I was at my parents’ house talking with my dad when his buddy, Jack (not his real name), pulled off the road and into their long driveway.
The combination of a dry year, a gravel driveway, and large tires on his 1986 Chevy 4×4 pickup made for one heck of a dust cloud as Jack made his way the 600+ feet from the road to the front of my parents’ house.
“Oh, boy,” Dad chuckled, “Jack’s gonna be pissed!”
My puzzled expression said more than I needed to verbalize, so Dad continued. “He’s coming over to show off his new paint job, and now, it’s all covered in a layer of limestone dust.”
I didn’t understand. The truck looked exactly the same as it had a few months before when I’d seen it parked over at Jack’s house. You see, though I’d never met Jack, I had gone with my dad to deliver some lumber for a repair job Dad was going to help Jack with. I think it was repairing a roof leak, though it has been long enough that I don’t remember the details. I do remember that Jack was asleep after picking up an extra night shift at the factory because we had to take extra care to be quiet and not wake him — he and Dad both had to work later that day.
By this time, Jack had made it up to the house and Dad went out to inspect the new paint. The truck looked great — almost new. But it had looked just as great when I was at his house. Which, if you know anything about mid-80s Chevy trucks, is a near miracle. The engines will run forever, but the body panels rusted out within just a few years — especially after the highway department salted the roads as was typical in Indiana winters.
After Jack left, I asked Dad why Jack felt the need to get a new paint job (especially one that looked exactly like the old one)?
“Jack loves that truck. It’s the only new vehicle he’s ever had, and if he has anything to say about it, it will be the only one he ever needs. You see, Jack found a rust spot on the fender at the end of last winter — and he almost cried. So, he set out to get the spot fixed and with it he rustproofed the body panels and had the entire truck repainted.”
What Dad said next blew my mind, “He could buy a new truck every year if he wanted. He’s a millionaire you know. He won the lottery back in ’86, but didn’t tell anyone. He just bought that truck, paid off his house, put the rest of the money in savings, and went back to his shift at the factory. He didn’t tell anyone right away. Most of the guys at the plant still don’t know.”
I couldn’t believe it.
Here was a guy who cleared $1 million (after tax) in the lottery and no one but his closest friends knew. (Note: $1 million in 1986 would be roughly equal to $2.3 million today)
He drove a 1986 pickup (which at the time was 11–12 years old) and lived in a 1,200–1,500 sq.ft. house in the suburbs of a nondescript Midwestern town. (Note: As of mid-2019, he was still using that truck as his daily driver.)
And the biggest kicker of all, was that he continued at his hot, sweaty, back-breaking factory job like nothing changed. To put things in perspective, I’m estimating that with a new top-of-the-line truck and his remaining mortgage, he spent less than 10% of his winnings and invested the remaining 90%.
What about you?
What will you do if you’re one of those who will participate in the annual, $1+ billion jackpot that will undoubtedly get shelled out this year? Granted the individual payouts will not have as many zeroes as Jack’s did. But will you be as conscientious with your payout as Jack was? Will you spend 10 percent or less on things you will use while investing 90 percent? Or will you end up broke with nothing to show for it when the next year’s payout comes?
By now, you’ve probably figured out that I’m not talking about a lottery at all.
I’m talking about your annual tax refund.
Which averaged $2,725 in 2019.
Not many of us think of our tax refunds in the same light as lottery winnings, what with lifetime riches and all. But I’m guessing that most of us treat them the same way those aforementioned actors/athletes/musicians treated their windfalls — by “treating” ourselves to luxuries we otherwise would only dream about: bigger TVs, nicer cars, smartwatches, new phones.
Pay attention in the coming weeks, you might be surprised at the number of companies out there trying to stake a claim on your hard-earned money. The image below is just a small taste of what awaits the unwary out there who don’t have a plan for their tax refund. The Google search that returned the image below, or rather all of the images that Google combined and I snipped, returned 131,000,000 results for “tax refund sale”. That’s a lot of sales!
Wait, you did realize that?
Tax refunds are not “winnings” they are “earnings”.
That is why they are called “tax refunds”. They are comprised of money you earned, that your employer withheld from your paycheck and sent to the government to ensure that you paid your income taxes throughout the year. When you pay in more than you owed to the government, the government then has to refund the excess to you.
So, it is more like a savings account than it is a windfall.
You didn’t WIN it. You EARNED it.
Does that make you think about it differently?
If you had retained a bit more out of each paycheck and only paid what you would owe in income taxes, you would have a bigger paycheck, but no refund.
What would you have done in that case?
If you’re like most people, who are living paycheck-to-paycheck, you would have let it slip through your hands and at the end of the year would have nothing to show for it.
But now, you do have or will have, something to show for it: cash in hand. Cash that otherwise would have gotten away from you.
Do you have a plan for what you’ll do with your hard-earned money?
If so: Great!
If not: Make one.
Or else, you’ll probably end up handing it over to one of the multitude of salesmen who are banking on you seeing it not as money earned but as a gift from the government that you can blow on new TVs or cars or gadgets or vacations.
Will you be like Jack?
Will you be the one who spends a small portion of your return on things they will use daily and invests the rest while going on about life and letting those investments earn money for the future?
Or will you just jack around with some fun money and have nothing to show for it in a year?
Make a plan today!