Mrs. Accountant, the girls and I took a hard turn right as we headed home from the eclipse. Gas low, we stopped at a gas station to fill up when I noticed a massive sign announcing the Powerball lottery was somewhere around a gazillion dollars and change. My frugal nature prevented me from buying a ticket, but Mrs. Accountant couldn’t resist. And now we are the proud owners of a massive nest egg.

Don’t worry! I will remember all the little people who helped me over the years. Now and again I’ll publish another post on this blog to rub your noses in the good life I am living. Suckers!

To be honest, Mrs. Accountant didn’t actually buy a lottery ticket and truth be told, we headed straight home after watching the moon slowly cover the sun.

There is a strong temptation when the lottery hits nosebleed territory. What people forget is that the odds are still 292.2 million to 1. For all practical purposes the odds are impossible. But, the argument goes, somebody eventually wins. True, but it won’t be you.

If enough people play the odds are someone will win at some point. The odds are so long no one in their right mind—I said right mind—would waste a nickel on state run lotteries. It’s the worst racket in town and in the end it will ruin your life if the impossible happens.

And after all this I still claim I won the lottery and I have. If you listen close you can win the same lottery I did as long as you don’t buy a lottery ticket.

Stacking the Odds

Over the years I have had several lottery winners walk through my office doors. In preparation I have a large legal firm in Milwaukee to help protect the client.

The lottery isn’t the only issue people face. Large monetary windfalls show up in unexpected ways. More common is a large inheritance. For some reason nobody knew dad was loaded. He lived so frugally the whole town just figured he was poor. However, dad has been investing religiously in a broad range of equities since 1938. Who knew?

The law firm I have on speed dial is the result of my greatest failure as an accountant. It was a long time ago and I was inexperienced. It cost a client dearly and it still haunts my dreams.

A young man walked into my office after winning the lottery. It wasn’t a gazillion dollars like some mega jackpots today are, but still a tidy multi-million dollar push.

He worked at a local mill and promptly quit his job. I never recommended legal counsel. I just did his tax return, provided modest advice and sent him on his way.

He bought a home cash, quit his job and started a business. After all these years I cannot remember what his business was. What I remember is how he became addicted to gambling. He needed another big fix. He thought if he could win the lottery once he could do it again. What he really needed was a doctor and I didn’t have one on speed dial back then either.

The first year he received a huge refund because they withheld a good portion of his winnings and he bought a lot, and I mean a lot, of lottery tickets after that. Since he had a large win he could deduct most of the gambling losses.

In year two he had a massive loss in his business and more gambling expenses. Unfortunately, you can only deduct gambling expenses up to gambling winnings. Since there were no withholding taxes paid he really had no tax issues, but no refund either.

Year three continued the spiral down. The business defaulted, gambling was out of control and the money nearly gone. And I did nothing.

He mortgaged the house and gambled it away. Then the house was gone. Year four was the last year I prepared his tax return. Another client who knew I was handling the lottery winner’s taxes informed me he was living out of his car: no job and no money.

Oh, I forgot to mention one salient point. He has a child, a daughter. He was living out of his car with his daughter. The nightmare returns every time the lottery makes the news.

My client couldn’t get a job. The whole town knew he was a lottery winner. Half the people hit him up for a loan and stiffed him. I never heard what happened afterwards. I’m not sure I want to know.

I promised myself I would never let this happen again on my watch. Over a few years I built a dedicated team of professionals to move in on a moment’s notice to help people with a large financial influx. A qualified attorney (not all are) is a must. The accountant bears a massive responsibility, too. I dropped the ball all those years ago. Never again.

Plenty of wealthy people have walked through my doors since. Whether it was a lottery win, a large inheritance, the sale of a business or investment, I have a program to steer my client to calm waters. In effect I become the buffer zone between them and the leaches and their persistent efforts to drain my client dry.

Mrs. Accountant and even my office manager frequently don’t know what is happening under their roof. Usually the client shows up wanting to speak to me about a personal matter. When the door is closed they tell me their plight. Privacy is the most important element.

Winning without Pain

You can win the lottery without all the pitfalls and pain. In my lottery you can’t take the lump sum option; only the annuity option is available.

There is one rule: you can never buy an actual lottery ticket! Instead, the money you are tempted to spend on lottery tickets must be invested in your retirement account for maximum prize money.

1888 lottery ticket.

I know, I know. When the lottery crossed a half billion you thought it would sure be nice to have enough money to tell the world to eff off. So you dropped a hundred on tickets. With millions of players nobody still won! And you were still too stupid to see how evil the odds were. Statistically impossible.

So you crack your wallet again for a chance at three-quarters of a billion. Same result. Some folks are slow learners.

For some the temptation doesn’t end there! The casino has better odds on each throw of the dice, but the edge goes to the house and the more you play the more you lose. Never mind that your favorite accountant used to play blackjack and win. It’s called card counting and gave me the edge. Until the casino turned into a sore loser and booted my sorry tail from the premises as they read me the trespass notice: come back on our property and go to jail. (As if that ever stopped me.)

Lottery fever goes beyond the mega jackpots. I see it in my office on a regular basis. It afflicts the middle class and poor with devastating results. Call it a stupid tax, but it is really state sponsored gambling addiction to extract a regressive tax from the vulnerable.

The amount gambled away by many people is a small fortune.

Did I hear someone say fortune?

Yes. Yes, you did.

Let me show you how I win the lottery every time the jackpot turns hot. This is your favorite accountant’s guaranteed method to win the lottery every time you play! I said guaranteed!!!

Remember the $100 you burned on lottery tickets? (Please tell me it was only $100, for Christ’s sake!) Well, invested in your retirement fund you would have been a guaranteed winner. Let’s review all your lottery winnings by using Keith’s School of Investment logic to count our score.

First, since poor people generally play financial Russian roulette, the lottery money diverted into your investment account will provide a whole host of tax benefits, the least of which is the Saver’s Credit. The tax benefits of loading an extra $100 every week into your account over the lottery’s could generate a tax benefit equal to or greater than your investment.

Now remember, the lump sum option isn’t available. The $100 invested will do two things: it will grow about 7% per year, plus the inflation rate and throw off a dividend that also grows around 7% per year.

Think of it this way. The $100 you pissed away, ah, invested in lottery tickets is gone with no return forever and always. Amen.

The very same $100 in an S&P index or total market index fund (or EFT) will throw off around a 2% dividend to start. This year your income will grow $2 without any additional work on your part. Next year you get $2.14 (on average); the year after $2.29, and so on. Each year your income increases faster and faster as it compounds.

But. . .

You have been blowing $100 every week on cheap booze and wild women, oops, that was me, on lottery tickets and the casino. Stupid stuff. (Not the wild women. Some would consider that lucky stuff. I beg indulgence from my female readers at this point.)

This little habit of yours is bigger than a 10 ton pickup truck with a hemi. $5,200 going down the drain annually and only empty pockets to show for it.

Of course you understand the odds are against you! You are NOT stupid. You get caught up in the hype. Casinos and lottery officials know how to play you (literally). You need to turn off the caveman part of your brain and do what is right for you!

If $100 generates $2 of growing dividends, what will 52 weeks of this craziness generate? Simple math says 52 weeks times a hundred bucks per week times two dollars of dividends each week you invest instead brings us to $104 after the first year. The next year you’ll book up against $114 of dividends even if you don’t invest another penny. And it climbs from there!

Now I know you guys are quick on your feet, but let me put this into perspective. That’s enough to play the lottery for over a week for free.

Had ya for a second, didn’t I? You know the truth. Your periodic gambling itch due to mega sized lottery jackpots is ruining your retirement plan (early or otherwise).

It is time to stop the madness. Play The Wealthy Accountant lottery instead. Everyone’s a winner! Yee haa!!!

And with only the annuity option available you get a raise every year for your trouble.

Nobody sees your puss on the news feeds and nobody asks for a loan or charitable contribution. All they do is walk into my office and tell me they had no idea dad was so loaded when they inherit your legacy.

New israeli lottery ticketThe lottery is back in the news with promises of a rich reward for a very small number of people who randomly pick numbers matching the officially drawn numbers. The odds are hundreds of millions to one. But you can’t win if you don’t play. Just one ticket, one little ticket. A single dollar. Better buy two; make that three.

Lottery sales shy rocket when the jackpot rises to mega levels. The impossible odds are still just as bad when the jackpot is massive. The one question I don’t hear people asking is: If nobody won the last time they drew numbers and millions played, what chance do you have of winning?

Eventually someone will win the jackpot and the madness will recede until the next jackpot reaches nosebleed heights. I have been fortunate to have worked with a small number of lottery winners over the years. There are lessons buried in there all of us can benefit from.

Warnings from Winners

I will share parts of the stories of three winners. Their backgrounds are different only in the details. All had jobs and were solidly in the middle class. They had great lives until their dream of quick riches changed their lives forever.

1.) Our first victim came to my office after he had won the lottery. His prize is the smallest of our group: $250,000. Around these parts we have a fair number of manufacturing and mill jobs; he had one of these jobs. Unfortunately, the notoriety of his luck spread around the mill like wildfire. Soon it was impossible for him to do his job so the job was gone. He bought a home paying cash. I agreed with this decision. Then the stupid started. Well, he thought, if I can win the lottery once, I can do it again. And so it goes.

He started buying lottery tickets like mad. The year he won the $250,000 he had over $80,000 in lottery ticket purchases, a deduction on his federal return resulting in a large refund; Wisconsin said fuck you to any tax deduction. You see, in Wisconsin everyone who plays the lottery loses; it is kind of like donating to the governor. Back to our victim. The large federal deduction gave him a substantial refund that year. Determined to never work again he kept, ahem, investing in the lottery. His refund was very small the next year. You can only deduct gambling losses to the extent of gambling winning so all those lottery ticket purchases meant nothing on the tax return. He now had a mortgage on the home.

The following year the home was sold and he was living out of his car. This is where my client and I parted company; there is no need for a tax accountant once all the money is gone. It was another client who informed me our lottery winner was living out of his car. All I kept thinking back then was, Thank the gods he had no children.

Lottery-winner parking spots at the Atlantic Lottery Corporation (2009)

The rich and stupid play the lifestyle game differently with expected results.

2.) Our next lottery winner hit close to home. The parents of an employee struck gold in the lottery, winning several million dollars. They lived down in Iowa at the time. Dad worked as an Emergency Medical Technician and loved his job. As a lottery winner certain jobs are no longer available to you; an EMT is one of them. As an EMT, every call would have ended in a lawsuit, as a lottery winner would seem too easy a target to pass up. At least this story has a happier ending. The money was invested in quality stocks; they lived on dividends only. Over the years their portfolio has grown and most everyone has forgotten about their moment of extraordinary luck. They live in a modest home and are happy. For the most part, money did not change them, it only solved any money problems they would ever have. This is about the best outcome you can hope for if you win the lottery. It also highlights how important it is to have a team of professionals on your side.

3.) Our last winner won a massive jackpot, the largest in history at the time. Our young victim had everything going for him: a job and a beautiful fiancé he loved dearly. He decided to buy a ticket because the news was playing up the world-record jackpot. Little did he know that when he bought that ticket he was selling his future wife and life-long happiness. He bought his ticket at a gas station in Fond du Lac, Wisconsin. He was the first jackpot winner from a stretch of road nicknamed The Miracle Mile due to several jackpot winners buying tickets on the short avenue. For some reason the miracles stopped after the nickname was coined. Go figure.

He was overjoyed when his numbers hit. The joy ended soon enough. His fiancé sued him for half the money and won. Then she left him for another man. Now that I think about it, it was probably best she left now rather than later; a woman like that is a divorce waiting to happen. (Just my opinion.) Once he lost the love of his life things turned up. He hired a team of legal, tax, and investing experts. He did well, as far as I know. He now lives a few miles south of me. He bought and upgraded a horse farm. He spends his days of quiet with his animals (something I understand very well) and from what I hear, a quality wife.

It Does Not Have To Be This Way

We are all familiar with sports stars blowing tens, even hundreds, of millions of dollars in a short period of time, which leads to:

Keith’s Rule # 17: There is no amount of money you cannot spend.

Don’t believe me? Look at the government. Now tell me how much is enough if your spending knows no limits?

The problem is falling into a large amount of money without any experience, planning, or preparation for the windfall. Add to the challenging new experience, a world watching your every move and wanting a piece of what is yours, and disaster will be the default rather than the anomaly.

Keith’s Rule #18: It is easier to get money than it is to keep it.

Some people are better at keeping it than others. Sport heroes landing a massive contract are ill prepared for the demands they face. Our star player is great at playing ball, but has spent virtually no time thinking about handling a large amount of money. They think money is for spending. It’s not! Money is for investing! Money is a tool, a group of hard working employees who never taker a day off. Money reproduces so you don’t want to blow it as fast as it shows up. The average household will bring in several million dollars over a lifetime (easy to get). How much is left at the end? (Hard to keep. Hence Keith’s Rule #18.)

Business Owners

Business owners are a different class. I have the great fortune of working with a large number of business owners for long periods of time. Business owners frequently land accounts with windfall profits. Because the business owner manages his company and finances daily, he has an advantage over lottery winners: experience. And very few know of his new-found wealth. Our business owner socks the excess cash into management accounts for later business use or investments for later personal use (retirement).

One windfall most longtime business owners enjoy comes from the sale of the business. For some reason business owners do much better when they receive millions from the sale of a business. They pay the taxes first, talk with their legal and tax team to protect their liquid asset, and spend considerable time reviewing investment options. Successful business owners have a plan. That is why they have a business to sell. They carry the same habits that created the wealth into their personal lives. It works.

There is one risk area for successful business owners when they plan on selling. The windfall is sometimes traded for a succession plan involving the kids. Now, I don’t want to say it never works, but it is rare when it does. I can’t count the number of businesses dad built and the kids pissed away. Whether you sell the business to the kids on installments (and payments dry up soon after) or the kids get a loan (which you later feel obligated to bail out), family is frequently a poor choice when selling the family crown unless the kids have been heavily groomed to manage an ongoing operation. The worst part is dad has to watch his lifetime of work destroyed. My advice to most clients is: sell for cash to a stranger. Once the transaction clears, do not look back. It only hurts when you do


The chances of winning the lottery are long. The chances you keep it and are happy after you win are just as long. What chance does a lottery winner have of having a happy financial outcome when they are the kind of person to spend money foolishly on lottery tickets? You might want to hold off on that lottery investment for a while.

Personally, I win every time the lottery is played. I win because I don’t play. The money you spend on a lottery ticket, I put into the First National Bank of Wallet, also known as an index fund. My lottery ticket non-purchases have accumulated well over the years. Dividends keep going up and up. The reinvested soldiers of fortune also start pulling their weight. They don’t ask for holidays, paid vacation, health care, or any other fringe benefits; they just keep pounding out more of the same: money. I stand back in awe at their relentless productivity and exponential growth. If man lived to be a thousand years old the process would crumble. We would all be multi-billionaires due to the compounded returns. Now you understand why nature requires we die when we do; to keep the world in balance.

When a lottery ticket is purchased it is with the hopes a win will solve problems. The quick fix never works. If you are unhappy before winning the lottery, you will be even more unhappy after. Your money problems will disappear, at least for a while. The only people who do well when they come into money are those who are already well-adjusted, happy people. If you start happy, money can make you happier because it allows you to do more. But these people have no need for a lottery ticket

If you already bought that ticket, oh well. If by some stroke of luck you win, assemble a trusted team of professionals to help you. Understand these trusted professionals will have their life turned upside down, too. Lottery winners tend to throw a wide circle of misery. The pressure from society and the media is intense. It might be better if you did not win.