The Reverse Lottery Test
The Reverse Lottery Test
We tend to look at financial independence as a numbers game. We calculate some version of enough, and than make life decisions based on it. Enough, however, is a fairly slippery principal. What is adequate for one might be inadequate for another. The definitions and acronyms abound. fatFIRE, lean FIRE, barista FIRE. I sometimes wonder whether we are missing the point. True definitions are probably less steeped in words and calculations, and more in behavior. With this in mind, I came up with the idea of the reverse lottery test.
The Lottery Test
The lottery test is the simple supposition that if one were to win an outrageous some of money, what parts of their life would still be worth doing. This especially comes into play when we are talking about our jobs:
Your thinking about quitting. Should you stay or should you go? Well, if you won the lottery, what would you do?
Although this only seems tangentially related to financial independence, I beg to point out that they are very closely linked. The lottery test is the behavioral equivalent of the mathematical formula of financial independence. Drop the words and math, and just look at a person’s actions. People who follow this litmus test act like those who have reached financial freedom regardless of the sums of money in their bank accounts.
The problem, however, lies in the fact that even those with gobs of money often have trouble turning down an easy payday. Billionaire or not.
So what the heck is the reverse lottery test?
Flip It and Reverse It
The reverse lottery test asks a slightly different question.:
What in your life would you keep doing even if you weren’t being paid for it?
By changing the wording a little bit, we get to the heart of the behavioral aspects of financial independence. Why? Because many people who have reached financial freedom choose to continue working. Many will not pass up a chance to make a few extra bucks if the task is enjoyable or at least not onerous.
And many of those who claim financial independence are stuck managing not so “passive” income streams, real estate, and online businesses. The reverse lottery test actually narrows our behavior down to those who really have found true freedom and have subtracted out all the activities in life that they are not so fond of.
Am I financially Independent?
Looking at the reverse lottery test and assessing my behavior, I believe that I am. Although I continue to work as a hospice medical director, I believe I would do this even if it didn’t come with a paycheck. I just feel like it is part of my purpose in life.
The same goes for podcasting and blogging. I make a small trickle of money off the blog, but would continue to do it even if I didn’t.
My other daily activities. Reading. Exercising. Public speaking. Again, things that I continue to do even though I make no money on them or the amount is poorly compensated for the hassle.
I can think of one small consulting activity that maybe fails this litmus test. But it is very tiny and takes up almost no time. Real estate is another question mark. But I truly enjoy owning, renovating, and renting out property. I suspect I would stick with it.
Final Thoughts
When we talk about financial independence we often focus on numbers and calculations. Yet it is difficult to compare apples to apples when everyone’s idea of enough is slightly different.
Instead I have decided to shine a light on the behavioral aspects of the phenomenon. Regardless of what they say, who acts like they are financially free?
The reverse lottery test is a good measuring stick to assess why people do what they do. Those who would keep doing all the same things they do today even if they weren’t being paid a cent for it are likely financially independent.
The proof is in the pudding.
I am one of those people who buys lottery tickets every time I buy gas; about every 2 weeks. I love daydreaming about how I am going to spend all that money I am obviously going to win; wink. That $5 is entertainment money and actually helps me prepare for retirement. Its an exercise in abundance. As the years go by, I have refined what I want and what I would do. I would stop working at my job, and my hobbies would take up that extra time.
I think this daydreaming is a productive exercise.
An interesting thought. I worked with a guy that was the only employee of a small appliance repair company in Sacramento that did not go it with the other 23 people at work to pool their money on lottery tickets. The group of 23 won big. It was enough to change lives. The guy was then working at our company, also a small place with 25 people. So, although I really don’t care for the lottery, the only time I would buy in was when the company set up a group pool. I mean, who wants to be the only one left at work to do everything?!
As to your question though, as an early retiree, as the years go by I find my own answers to that question. Blogging and making Taiko drums have made the cut, so far. But managing our rentals is fading in the background. After 35 years of landlording, we are now set to hire a property manager. Now I can visualize it as winning the lottery!
Yep, landlording can be tiring. It looks like it doesn’t bring the value that is used to for you.
Enough is often billed around success. Look at me! I made 25x and I HAVE ENOUGH. In reality enough needs to be judged by the probability of failure across a retired lifetime and the contingents in case of failure. I spend some time consulting for an engineering firm every week fro free. I spend time designing micro-controller circuits with zero interest in marketing the same though they could be marketed. Who needs that hassle. I play a lottery game every week, a game that will never pay big but pays often. So far I’ve hit something 4/5 weeks but the state has more of my money than I have of theirs. My odds, 6/10, but ts fun enough to keep playing. Side gig, blogs etc fun enough to keep playing but if you’re planning on that to pay for your failure it ain’t enough.
I like your lottery playing analogy. Fun but not economically sustainable if you are depending on it.
I like this thought exercise.
I enjoy teaching, but it takes up so many hours of my day. I leave home at 7 AM and today I won’t get back until nearly 6PM.
I like my job, but I’d give it up in a heartbeat to have my days for myself.
I bet, if you could retire today, you would find a way to teach occasionally just for fun.