 Hey,
you! You won't win the lottery!
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Do you play the lottery regularly? If so, do you really
expect to win?
About one out of five Americans believe that winning
the lottery is the most practical way of attaining personal wealth,
according to a survey
released in January by the Financial Planning Association and the
Consumer Federation of America. Among Americans with salaries of
$25,000 or less, 38 percent believe the lottery is the way to go.
CFA Executive Director Stephen Brobeck says he's concerned.
"Nearly 16 percent said that winning the lottery
was a very important wealth-building strategy for all Americans,"
he says. "It appears that these Americans both greatly overestimate
their chances of hitting a lottery jackpot and greatly underestimate
their ability to build six-figure wealth by patiently making regular
savings contributions over time that benefit from interest compounding."
Most people know that the odds of winning the lottery are ridiculously
remote -- approximately one in a gazillion (technically speaking,
they're only hypergeometrically remote, according to the Minnesota
State Lottery's explanation
of the math).
Those who do win the lottery do not always achieve
lasting financial security, as Bankrate's article, "Unlucky
lottery winners who lost their money," reveals.
Unnecessarily negative attitudes
Let's face it: Expecting to get rich by winning the lottery is just
not realistic. Sure, I play once a week, too. One can hope and dream,
right? But somehow I doubt that the fates will intervene and provide
me with retirement security. So -- who better to provide it than
myself?
Brobeck says Americans are pessimistic about their ability to accumulate
wealth. "This pessimism is usually not warranted. According
to our survey, only about one-quarter of Americans, and little more
than one-third of young adults, think they will accumulate as much
as $200,000 at some point in their life."
Yet financial planning experts have a much more optimistic outlook,
believing that about 80 percent of young Americans could save up
at least $250,000 over a 30-year period, and half could amass $1
million -- with no help from winning lotto tickets.
How? By making monthly contributions to a retirement plan throughout
their careers.
What's your net worth?
As a first step, Americans need to know what they're worth. I'm
not talking about your intrinsic value, because we all have inestimable
worth in that sense, right? Rather, how much wealth do you have,
or, what's your net worth? Only about half of Americans know what
components make up net worth, and less than half know what their
own net worth is, says the survey.
Your net worth is a simple calculation of assets minus liabilities.
Assets would include checking and savings account balances, money
market accounts and cash value of insurance; the current market
value of real estate you own; plus investment assets, including
money in IRAs, 401(k) accounts and mutual funds in taxable accounts.
Liability is a fancy word for debt, represented by outstanding credit
card and auto loan balances, as well as mortgage and home equity
loans.
You can probably do a quick calculation in your head, but if you
want to do it right, you should check your bank and brokerage statements
and create a personal balance sheet with precise numerical values
at least once a year, preferably on the same date. This net-worth
statement enables you to track your financial progress from one
year to the next.
Other handy tools
Our net worth as a financial snapshot is useful. If it increases
every year, that's good. If it doesn't, it's bad. But what does
it mean relative to achieving specific financial goals? Is the debt
that we're carrying too high? How much debt is too much? Have we
accumulated enough savings at this point in time to meet our future
savings goals?
Whether we are on track to meeting our goals will depend a lot
on the variables -- our ages, the number of years left before we
need the money, the return on our investments, the rate at which
we withdraw the money, the number of years we expect to live, etc.
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