Winning the lottery may not kill you, but 70% of the time, it spells financial suicide:
It is estimated that up to 70% of all people who suddenly receive large amounts of money will lose that money within a few years.
It doesn’t take a genius to realize that the twin culprits are:
1. Gaining a large sum of money too quickly; this can be from an inheritance, winning the lottery, selling a business, and so on.
2. Impulse spending; the more you have, it seems, the bigger the amounts that you are prepared to spend on impulse.
The problem is, if you gain your money too quickly, you don’t give yourself time on the way up, to learn the lessons of money management that need to be learned in order not to fall back down.
And, when it comes to money, the bigger they are (as in, the bigger the windfall gain), the harder they fall:
So, here’s my golden advice on dealing with ‘sudden money’ that will help you avoid going broke again …
… as soon as you get that windfall, start using this table to effectively control that spending impulse:
If you hit the jackpot and made more than a couple of million, then you just start adding zero’s to the dollar amounts in this table, to suit!
But, the ‘default table’, as presented above, is a pretty good place to start …
… and, there’s no reason why you need to wait for the windfall before you start using it 😉
AJC, this to me is another simple lesson in self discipline.
I know you favour income creation and advancement above cost reduction (ie living frugally) and I agree with this approach.
However, getting a grip on expenses and adjusting my lifestyle in order to allow me to invest money has been a real turning point.
I really like you’re rule of delayed gratification.
Another interesting one is to put your credit card in a cup of water and freeze it. If you want to make a purchase you need to get the credit card out of the ice, which takes time and allows you to consider to you purchase.
I should develop a wallet where that chart is laminated onto the outside of it. Of course, the subset of the population who would find that interesting probably wouldn’t need it!
Great points. There was a quote I heard once (from Jim Rohn perhaps?) about the difference between having a million dollars and “being” a millionaire. They are not one and the same.
@ Mike – … or, just freeze your own accounts 🙂
@ Joe – I agree: that Number, now, is more like $10m.
Love the simplicity as always. This is a good guide but it also needs motivation (not discipline). This is how, PF management becomes and art form.
@ Maria – great point re motivation … without it, no personal change can happen.