The three questions to ask yourself before you gamble (on anything)


(Note from after this post was written: Oy, what terrible timing to write about Las Vegas. My heart breaks for everyone affected by the horrors that transpired there this past week. There may not be any justice or sense in what happened, but let’s at least take a moment to be grateful for everyone special in our lives.)

There are many opportunities to separate you from your money. Some of them are swift and cataclysmic, while more often they are slower and insidious. (I would put debt in the latter category.)

And one of the easiest ways to part with your money is through gambling.

But it’s not so simple, because one of the other easiest ways to part with your money is by spending it on things you enjoy.

And these two can intersect.

For example, you may love going to Las Vegas. You may love the devil-may-care attitude, the garish opulence, the adult fun-zone-ness of it all. I get it. I went to Vegas earlier this year, and I thought it was wild fun (though maybe only for a few days).

Flamingo Hotel

Also, you might like the idea of speculating on penny stocks or other high-risk financial products.

While the most prudent advice is (like I say with the lottery) “please don’t“, I’ll expand the field, and ask three questions about the potential activity.

Question #1

“Would I still engage in this activity if I knew I would definitely lose all of that money?”

When you engage in any speculative activity, there is a real chance that you might lose it all, and possibly quickly.

Whether it’s a certainty, or whatever the odds are, that isn’t relevant here. How would it feel to lose it all?

If the answer is, “well, that would suck, but I’ll have had a good time” then that’s a reasonable response.

If the answer is, “oh that will never happen; I’ll make sure of it” you’re probably deluding yourself and/or not willing to lose it all. If so, you are in grave danger.

Question #2

Now let’s say that you’re totally comfortable with the equivalent of taking all the money in question and throwing it out the window.

The next question is:

“Have I provided for this in my budget?”

Remember that you need to assume this money is gone. Even if you theoretically have the chance to make it back in some way, assume you don’t.

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Therefore, it’s an expense, and must be treated as such.

Do you have enough money in your Fun/Misc category (or whatever you call it) to account for this spending? Do you have enough money for the rest of the month?

Question #3

You still have one final question to ask yourself about the viability of your gambling venture. And this one isn’t a yes/no answer.

“What am I not spending this money on because of this?”

When we think of spending, we need to think of “opportunity cost” too, which is what you could have spent your money on.

To take an extreme example: if you were to spend $100 on gambling, you’d have a fun evening. But if you were to invest $100 in a mutual fund tracking the S&P 500 (which has a 10 year average annual return of around 7%), and let it sit for 10 years, you could have around $196, or almost double your money. (Give it 30 years, and you could have a return of 700%).

To take a less extreme example, are there other purchases you’ve been thinking about, but will now need to be held off a little longer because of this?

Is it worth it?

My gambling example

I enjoy slot machines sometimes. They are crazy, seizure-inducing video games these days, and their games can be enjoyable, if of course still effectively the same one-armed bandits they always were.

A few years ago, I went to a casino. I decided to spend $20. I played a bunch of different machines, and I believe my money was gone within about two hours. But I didn’t mind. It was the equivalent of spending $20 on an evening of entertainment. And I was entertained.

Moreover, I had none of that sinking feeling that accompanies a regret. I felt fine about it.

I went in with that same idea this year when I went to Vegas. I gave myself a budget of $20 to spend on casino entertainment.

But you know what? I never sat down at a single machine. It just didn’t seem that worthwhile. The spectacle of Vegas was much more interesting than any video screen.

And it didn’t cost me a thing.

Take whatever lesson from that you’d like.

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