Buying a Lottery Ticket is Not Financial Planning

The world is made up of different kinds of people.  Some are always looking ahead and planning.  Others sort of “fly by the seat of their pants.” When it comes to financial planning, the “seat of the pants” method often produces disastrous results.  Yes, you might win the lottery, but in most cases not having a financial plan leads to more debt than you can handle.

Every day I deal with people that are experiencing financial difficulties.  While each case is unique, there is often an underlying theme that helped contribute to the problems – a general lack of planning and financial awareness.

Very few people set out to file for bankruptcy in Canada.  If people don’t set out to become bankrupt, then how will it happen to well over 150,000 Canadians this year?   It’s not that they planned to go bankrupt – part of it is that they didn’t plan for anything at all.

I’ll give you a very simple example.  We all know that Christmas comes every year on December 25, but there are still people (I’m one of them) that keep putting off and putting off getting ready for the holiday.  In the end they make a mad dash to the nearest mall and try to pick up whatever they need at the very last minute.  This usually means they can’t find what they really wanted to buy and they end up paying more for the items they do pick-up.  January rolls around and the bills start coming in, but there’s no money set aside to make the payment  This isn’t done on purpose – it happens because they didn’t make a plan.

All it takes to correct this problem is to say to yourself  “next year I’ll do it differently.”  That’s the easy part – the hard part is to actually do it differently.

What would it take to solve this problem?  Well, you could set aside $50 every month in a Christmas bankr account.  In October you could put together a list of who you need to buy for and then allocate a portion of your Christmas fund to each person.  Then start looking for presents.  These simple steps will change the Christmas nightmare into a manageable event.

The same rules apply to all of your financial decisions.  Never just buy something on impulse or at the last minute.  Always think through the purchase – you’ll be amazed at how many times you decide a day or two later that you don’t really need/want the thing you were going to buy.

Learn how to prepare and follow a budget – it doesn’t need to be accurate to the very last penny, but you should know how much it costs you to live every month and you need to make certain that you can afford the lifestyle you’ve selected.  (That means you can’t spend more than you earn.)

Try to pay cash for major items or at least budget in advance for the payment plan if one is required.  You should never look at a purchase on credit if you haven’t planned where the monthly payment will come from.  You’ve only got so much money to go around.  If you sign-up for a $200 monthly payment then that’s $200 you don’t have for something else.  Unless you’ve come into more money, to pay for the new thing you have to give up something else.

What’s the hardest suggestion to follow?  Set aside something for a rainy day.  It’s easy to plan for Christmas – you know exactly when it is going to happen every year.  It is harder to plan ahead for a layoff, or an injury, or a blown transmission in your car.  These things do happen, it’s not a question of if, it’s is a question of when.

Finally, buying lottery tickets is not a replacement for financial planning.  You can’t count on winning the lottery – if you want to have something set aside for tomorrow then you need to plan to do without that money today.