Smart Money Daily says that winning the lottery is a “one-way ticket to misery” … and, I couldn’t agree more!

The problem, as he puts it is this:

There is something about our culture that gets people very excited about getting something for nothing. The thought of paying $1 for a lottery ticket and coming away with several million dollars is a fantasy many people can’t let go of — in fact, that’s why the lotto companies can afford to keep going in the first place.

The problem with winning so much money is that it’s a complete life change that very few people are ready for. Going from near poverty levels to wealth rarely ends well. People tend to either wind up lonely, broke, or in some other kind of trouble.

I couldn’t agree more …

I’ve read that 4 out of 5 lottery winners are worse off 5 years after winning the lottery than they were before. The problem is that you have to make your money slowly in order to learn  the rules of money that allow you to keep what you have.

I am always amazed at sports and rock stars who sign multi-million dollar contracts then are broke just a few years later (remember MC Hammer?) … according to Motley Fool, it boils down to two main issues:

i) The newly rich don’t look after their own money very well

I remember receiving my first multi-million dollar check; I flew to Melbourne from the US to personally bank it – after ‘watching’ it flow through the right channels. I remember worrying that the personal bankers might have just printed up fake bank business cards and rented a fake office just to rip me off!

By the time I received my next two checks (one of them just as big at the First Big One), I just let my accountant bank them for me … it’s amazing how your mindset can change so quickly. So, it’s no great surprise that some of these people simply trust others with their money.

ii) They spend more than they earn

This is an easy one: it’s ALWAYS easy to live beyond your means, no matter how large your means are 😉

Here’s a ‘system’ for those who receive a ‘one off’ amount … or, have a potentially limited life to their large earnings (e.g. a 5 years sports contract; a 10 year lottery payout; etc.):

1. When you sign the contract for $X per year, realize that you DON’T have 80% – 120% of $X per year to spend!

2. Instead calculate how much you will build up over the LIKELY life of the ‘contract’ and plan to save most of that (a secure/insured bank account is JUST fine for this purpose)

3. That total becomes your Number: adjust for inflation (i.e. take off 50% if it will take you 20 years to accumulate that amount … prorate for any shorter period)

4. Take 5% of that ‘accumulated’ Number and that’s the amount that you can afford to spend in any one year ‘living’ – starting now …. period!

5. To decide how much house, cars/possessions, etc. that you can afford simply apply the 20%, 5% and 25% Rules to your ‘Number’, accordingly:

– House: presume that you’re going to pay cash for this, and put no more than 20% of your expected ‘Number’ into the house; if you actually intend to buy so much house that you can’t pay cash (sucker!) then you MUST apply the 25% Income Rule,

– Cars and Other Possessions: always pay cash for these, and put no more than 5% of your expected ‘Number’ into them … since you will most likely enjoy spending, spread the 5% over the number of years that you expect to achieve your Number.

Of course there is still risk in this, but you are a [Insert Lucky S.O.B. Reason of  Choice: Lottery Winner; Rock/Movie/Sports Star; Slip’n’Fall Insurance Payout Recipient; etc.; etc.] so, you probably won’t be able to fully contain your spending until after you actually see how much money you are GUARANTEED to end up with, so this ‘system’ is at least designed to keep your spending as ‘realistic’ as we can without sacrificing your Rock Star Image (or, whatever ‘image’ you are trying to project) too much 😉

Still, to be safe yet keep up pretenses, simply rent the house (that’s where the 25% Rule comes in; i.e. don’t spend more than 25% of your after-tax yearly earnings on rent and other direct housing expenses) and cars until you’re pretty sure that you will actually achieve your Number … or, be prepared to downsize pretty quick if something happens (e.g. sport injury).

Oh, and forget the blood-sucking entourage!

I hope that this post becomes VERY helpful to you, one day soon 😛

Kimberly Palmer wrote an excellent piece for US News (and, reprinted by Yahoo News!) called 10 Secrets of Millionaires’ Money Management and the first cab off the rank is 7million7years!

I’ll let you click on the link to read the article in its entirety.

In the meantime, I thought that I should share with you my response to Kimberly’s contribution request which said:

I’m writing a story on “secrets of millionaires” and would love to include some of your thoughts — could you please share two to three of the strategies that worked for you, perhaps things you’ve written about on your blog before?

Hmmm …

Two or three strategies that could be counted as a ‘secret’ to becoming a millionaire?

The strategies are easy (Kimberly included one of mine in her finished piece), but there’s nothing ‘secret’ about making money and/or amassing serious wealth, as my eventual response to Kimberly showed:

Here we go:

1. The Number One secret of being a millionaire is not an obvious one, but it’s the absolute key: you need to know your Number i.e. how much is enough FOR YOU.

For most Gen-X and Gen-Y’ers, retiring with a couple of million when they are 65 won’t be anywhere near enough to maintain even an average lifestyle because that little pup called inflation is constantly nipping at your heels as you try to run towards building your own retirement nest-egg. You need to be aiming for a MINIMUM of $3 million+ in 5 to 10 years to even be considered a ‘bare bones millionaire’ these days.

2. The second secret is also counter-intuitive but equally powerful: when you get to your Number STOP and live your Life, you deserve it.

For example, if you have a business and somebody offers you enough money to meet your needs for the rest of your life, then – as long as the offer values the business reasonably – TAKE IT. Don’t get greedier 😉 by rejecting the offer looking for more. And, don’t be tempted to start again – lighting doesn’t often strike twice and who knows when the next recession (or other disaster affecting your business e.g. fire, departure of a number of key employees, etc.) will hit?

3. The final secret is to learn the lessons of money early and stick to them.

For example, know how much capital to have invested in your own home, in your cars and in your other possessions, learn how much you can safely borrow, learn how to live within your means, and learn how to delay gratification; these are the habits that you need to maintain on the way up, so that you can keep your millions when you get there. If lotto winners can spend their winnings in just 5 years and end up broke and athletes and celebrities such as MC Hammer, Elton John, and Evander Holyfield can spend their huge fortunes, your paltry few millions can easily disappear much faster than it arrived.

See? This is pretty much it … the rest is just “filler” 😉

[Click on the graphic to view video]

He’s perhaps the poet of our (well your) generation … a guy who beat all the odds to live his dream: who would have imagined a white rapper (insipid Ice-T – only nice on a hot day – aside)?

So, would YOU capture it, or just let it slip??!!