Financial Idiot 004 - What to do with 2000€ tax-free a month?
This Blog Post was originally distributed by the Newsletter "Financial Idiot". You can find and subscribe to it here.
DISCLAIMER: I'm an idiot and this isn't financial advice! You can lose money when investing, and you should never invest money you don't own or you can't afford to lose. I'm not responsible for your decisions!
Did you ever think about what you would do if you had won the lottery? If you won, what would you do with the money? Welcome to a new Issue of "Financial Idiot".
Some time ago, I got sent a video about the lottery and why it might be harmful to win it (https://youtu.be/WVPgrfSYEiM). I'm sorry, I can't remember who sent it to me, but I found it interesting, so I'm sharing it. Could a win in the lottery be the worst thing that could happen to someone?
I buy a lottery ticket from time to time, but most often, it is a so-called "Brieflos". The win has an upper limit of 100k€, and it "only" costs 1€ to buy. But there are also a few other more exciting forms of the "Brieflos". For example, there is one where you get 2k€ a month for the next ten years ("Zehn Fette Jahre").
Thinking back to the video, that's a 10x factor smaller sum (240k€ over ten years), and thus, in my opinion, "way easier to manage". So what would I do with 2k€ extra each Month?
Quitting work would be idiotic. You only get ten years of more effortless living and not forever. The second dumbest idea would be to spend every cent of it directly every Month. So what stays? - Investing.
Although it isn't the best idea to repay my Apartment mortgage quicker, investing would bring more returns than the interest on my mortgage does cost. However, putting down another 800€ per Month (I can only repay an extra 10k per year; see FI#001) would rapidly reduce my interest payments and thus reduce my repayment time and the risk of high interest due to the variable interest rate.
That leaves another 1200€ to spend another way. 500€ I would put in my ETFs (see the last FI#003), bumping the monthly saving plan to 800€.
Another 500€ could go into my crypto portfolio: 150€ in BTC (Bitcoin), 150€ in ETH (Ethereum), 100€ DOT (Polkadot), and 100€ in NEAR.
That would leave 200€ spare. Part of them could be spent on "free" lottery tickets or sink into cigars and whiskey.
In theory, that sounds all good and interesting, but a significant factor is left out: self-control, or the lack thereof. Without self-control, the extra money could be eaten up in no time. After ten years of regularly getting it, how would you stop spending the 2k extra after they are not coming in anymore? How long can you suppress the urge to spend? I'm sure controlling yourself over that is way more exhausting than it sounds.
Interestingly there seems to be a method to make it easier for yourself (I read that somewhere): Ask yourself daily what you would do if you win X amount. While doing that, you "train" your brain to think about possibilities you could do with that extra amount. That way, a win wouldn't shock you as bad as you have already laid out a plan and prepared. You don't need to suppress the urge to spend as much, as you already know what you will be doing.
I wonder if you (yes, you reader) are playing the lottery? Please shoot me a message via the email link down below.
In the next issue, we will look at how you can play the lottery on the shares market: "How to leverage like an idiot".
I will leave you with a proverb I've heard in the past: "playing the lottery is paying the idiot tax". Sure winning is a tiny chance, but since the lottery is partly state-owned here in Austria, I'm just putting the money into country development (Philanthropy, anyone? :)).