At university we would often chirp away to about winning the lottery. There were lots of superb ideas floating about. Travelling. Starting up a business. Seeing how good you could get at a single pursuit, say snowboarding. Trying to find out where your friends moral limits were, for example would they marry a cat and keep up the pretense for £100,000? No? How about £250,000?
But the one that appealed to me the most was putting it all into an ISA and living off the interest. This was back in 2001 and ISA rates were about 5%. I fantasized about living of the £50k that £1million invested in an ISA would provide me, all while doing nothing! So close to being an early Financial Independent convert. Too bad it took until the summer of 2014 for me to come across this concept.
[I stumbled across this article while looking up old ISA rates. This paragraph in particular – “One of the worst offenders is Smile, the internet arm of Co-op Bank. At the beginning of 2001, its cash Isa paid the highest rates on the market: 7.25 per cent on balances below £3,000. On the same balance, it now pays just 4.25 per cent.” Oh how times have changed.]
Ignoring the fact that you couldn’t just plow £1million into an ISA (especially when the annual limit was about £3,500 back in 2001). Ignoring that you’d be aggressively exposed to interest rate risk and inflation risk. Ignoring the fact that you wouldn’t be diversified in the slightest. I was onto something. If only I had followed through with that line of thinking! After all, it is nearing the basis of Financial Independence.
|Some FI cufflinks|
The lottery is a lottery
The lottery has been described as “a tax on stupid people”. While your chances of winning are tiny, this is a bit unfair. They do fund a lot of good projects and support a lot of athletes that would otherwise be left to their own devices.
But I can kind of see the point. The chances of winning the lottery in the UK are about 1 in 14 million, or 0.000007%. That is not a big number. It is the same probability as rolling a 6 on a dice somewhere between 9 and 10 times in a row. Doesn’t feel the same, but it is.
We know those aren’t good odds. Yet for some, it does appear to be their only retirement strategy. A whimsical, tiny, shimmering hope on a distant horizon.
And it’s exactly that, just a hope. A prayer. A longing that something so fucking unlikely, something of your choosing, will happen to you. The thing is, it’s out of your control. You can’t get any better at the lottery. There is no skill in it. You won’t see the answer in tea leaves or by sacrificing a goat. There are, sadly, no 10 week lottery training camps on remote islands in Thailand. Every combination of numbers is just as probable as another. 1, 2, 3, 4, 5 & 6 are just as probable as 3, 6, 19, 33, 35 & 43. There is no formula, no analysis of historic data, no momentum effects that will help you here. It is just pure luck.
As an aside, winning the lottery twice is improbable, but it is not impossible. The couple that won the lottery twice in a row didn’t have some secret formula, they were just lucky. Why was someone who had already won millions was spending part of this trying to win the same again? Perhaps because winning that much money isn’t that satisfying.
Start your own Financial Independence lottery, and set the odds in your favour
If the odds were more in my favour would the lottery have seemed more appealing? Of course it would. What if the chances of winning the lottery were 1%, 5%, 50% or 90%? I would have chucked every £1 I had at it.
I quickly discarded the idea of living off the income generated by some lottery winnings because I knew just how unlikely a lottery win is. But I also thought that I would never be able to generate that kind of capital myself.
So I have set up The Financial Zombie’s Financial Independence Lottery. All you need to do is commit to living off significantly less than you earn and saving the excess. But in The Financial Zombie’s Financial Independence Lottery, the probabilities of winning are, to some extent, within your control.
Spend less and you are increasing the amount you can save.
Save more, then you are increasing the chances of you building up a pile of assets that can provide you an income that you can live off.
Investing the excess in a diversified intelligent way and not burying it in the garden should increase the chances of success in the long run.
The probability isn’t going to be 100%, as we can be certain of anything. But we can certainly try to make financial independence more probably that improbable.
I’m making my chances of financial independence a probable probability.