No Debt Plan

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This is a continuation of my Dumb Money series. The last post in the series, Dumb Money: The Movie Theater, was used as a guest post at Get Rich Slowly.

My next target? The lottery.

The lottery would be fantastic, if only I could win it. Alas, Alabama doesn’t have a lottery. Of course, even if we did I would not partake. Let’s look at some simple odds courtesy of WebMath.com (it was the first result in my Google search).

To my understanding, most of the major lotteries require you to pick six numbers (usually 5 and the “super” number at the end). Using the calculator, we’ll tell it to pick 6 numbers ranging from 1 to 99 and to not replace each number when it is picked.

Result? The odds of picking six correct numbers is 1 in 1,120,529,256. Picking five numbers? 1 in 71,523,144. Are you really going to be able to pull off those odds? I doubt it. Sure, someone has to win. Someone does usually win. Just look at those odds before plunking your $1, $5, or $10 down.

To put this in perspective, let’s look at some other ‘common’ odds. You have a…

• 1 in 2,000,000 chance of being struck by lightning.
• 1 in 12,000 chance of finding a pearl in your oyster.
• 1 in 705,000 chance of having quadruplets (if you are a pregnant woman).

“But lotteries help fund our schools and education programs!”

Really? Thanks to the New York Times, we know that at most (in New York, no less) 5.3% of the money provided to schools comes from lotteries. Sure the numbers can look great because there are billions of dollars involved. So a few million here and there for education sounds great. The net revenues that end up going to schools aren’t terrible — 30 to 40%. The rest goes to run the lottery — marketing, prizes, and vendor (gas station) payments.

The end result is there are a group of core players that play lotteries. I couldn’t find the data, but you would imagine these are not folks with millions in retirement money. The lottery is occasionally described as just another tax. The only difference is you volunteer to pay this tax. The worst part is that 60 or 70% of the “tax” you pay doesn’t even go to help education. You would be better off having an actual tax that everyone paid because then every dollar could go towards education.

It’s Cheap and Harmless Fun

Lotteries want you to come back and play. They want to entice that core group of players. As noted in the NYT article above, states are coming out with more instant gratification games that are more addicting. I wouldn’t call that harmless.

It isn’t cheap, either. Assuming you play the lottery once per week for only $1, you’re giving up a lot of money in the long run. If you saved your $52 and put it into a savings account or other investment only once per year, and earned a 5% return, you would have $1,805 in 20 years. I would guess most core players do not play for just $1 per week so it just gets worse from there. (Add a 0 to the above number if you played $10 per week.) Imagine if you applied that money to your debt instead of throwing it away!

Then there is the little fact about most lottery winners being broke within five years of winning the lottery. It’s just a bad system all around.

So what do you think? Are you for or against the lottery? Do you play the lottery consistently? If so, are you in positive territory with your winnings?

Chandler: Oh yeah, gym member. I try to go four times a week, but I’ve missed the last 1200 times.
Ross: So why don’t you quit?
Chandler: You don’t think I’ve tried? You think I like having 50 dollars taken out of my bank account every month? No, they make you go all the way down there! Then they use all of these phrases and peppiness to try and confuse you! Then they bring out Maria.
Ross: Who is Maria?
Chandler: Oh Maria. You can’t say no to her, she’s like this lycra spandex covered gym…treat.

Thanks to the writers of Friends, we can kick off what I hope becomes a regular post that we’ll call Dumb Money. Simply put, these posts revolve around dumb money moves that are keeping you from getting out of debt. Keeping you from moving forward with your financial life. Sort of like Dave Ramsey’s stupid tax.

Physical exercise is a great thing. Staying in shape should help your finances down the road because you will be healthier. Exercising creates endorphins which puts you in a better mood. All around, exercise is a good thing and I’m not knocking it. In fact, I need to do more of it.

I am knocking paying $25 or $50 per month to let someone allow you to exercise.

What does a gym offer that you can’t do at home?

• Equipment? You can get by with the basics.
• Special showers? No; at least not that I’m aware of.
• Convenience? What is more convenient than your house or apartment?
• A warm space in the winter or cool space in the summer? If you work out at home, it will be heated and cooled just as much as the gym down the road.

In regards to equipment, you don’t need a treadmill, elliptical machine, or stationary bike. Some basic equipment you can use at home: tennis shoes and dumbbells. Of course the shoes are to jog/run outside. You don’t need fancy $100 running shoes either — I use tennis shoes I’ve had since high school. I’m 23. (Again, I’m not a fitness expert, but these work for me.)

Dumbbells are surprisingly diverse … you can work a lot of different muscles with such a simple tool. Judging from a quick Google search, you might expect to pay $1-2 per pound per dumbbell. So your $25/month gym membership would buy you two 10 lb. or one 20 lb. dumbbell in the first month. That would keep you busy for the first month, and you get to keep them! The next month you could buy additional weights, or save for something larger; in essence building your own home gym.

On top of jogging and dumbbells, you can do push-ups and crunches. All for free. In your living room. In your underwear (blinds closed, please).

Just like any other service provider, gyms want to entice you with “free” benefits — especially this time of year. It’s New Years resolutions time, so sign up now and get three months free! Or free spa treatments in your first month, or, or, or…

$25 per month is $300 per year. $50 is $600.What if you put $50 towards your debt snowball, emergency fund, or retirement account?

So don’t be Chandler. Suck it up and quit the gym!

* * *

I just noticed Flexo at Consumerism Commentary wrote an interesting article in 2007 about the gym: 10 Things Your Gym Won’t Tell You.