Winning The Lottery Doesn’t Make You Wealthy
Posted on October 20, 2006
When North Carolina finally passed a lottery bill, I overheard dozens of people talking about how they couldn’t wait until they could buy tickets. Their conversations ranged from the big houses and new cars they were going to buy, to the vacations they were going to take when they hit it big. I found it amusing that their thoughts centered on how to spend the money, and do it quickly, rather than investing it and enjoying the income. Then I read a Bankrate.com article by Ellen Goodstein about 8 lottery winners who lost their millions and it brought things into perspective.
The article chronicles the plight of 8 winners who won a total of $53.1 million, but ended up destitute and broke within a few years. One of them hit the lottery twice in a two year period and won more than $5.4 million, yet today she lives in a trailer and the money is all gone. Why? Why do so many lottery winners fall on hard times? Just think, if Evelyn Adams, who won the New Jersey lottery in 1985 and 1986, had just deposited the $5.4 million she won in bank CDs at a meager 3% interest, today she would be enjoying a $13,500 monthly income; an income that would continue for the rest of her life without touching the money she won.
Goodstein’s article is laced with stories of greed, foolishness, dashed dreams and healthy dose of plain ole stupidity. It illustrates that suddenly coming into large sums of money without the knowledge to handle it can be as big a problem as the burden of not having money. That’s the biggest reason I’m an advocate of teaching financial responsibility at an early age before one’s ability to earn income outstrips their capacity to manage it.
All you have to do is look around to see that financial irresponsibility is not limited just to lottery winners. Many people obtain academic degrees that enable them to earn tremendous incomes without learning how to control spending or oversee investments. Some buy stocks like they would lottery tickets, with little research or thought and hope for the best. Others don’t even bother investing because they think they have the ability to earn all they will need to live a good life.
Susan Bradley, a certified financial planner who authored Sudden Money: Managing a Financial Windfall says that people who come into a windfall will typically put buying a house as No. 1 in a list of 12 choices, while placing investing at No. 11. Whether you win the lottery or get a great job, you need to learn how to manage money if you expect to have long-term success.
Mike Tyson, the heavyweight boxer, is a good example of someone making millions and losing it all because he lacked the knowledge required to manage money. If you do a bit of research, it isn’t hard to find actors, musicians, professional athletes, and other high earning individuals filing bankruptcy because they couldn’t manage the money. But, this problem is not only limited to high earners and lottery winners; ordinary working people suffer the same fate, they just aren’t as high profile and you don’t hear the crashing thud when they fall.
Here’s a tip! Whether you win the lottery, earn a million dollars a year or work down the street in a factory, the same simple principles apply to managing money. Don’t spend more than you make. A house payment is better than a rent payment, but don’t go in debt to purchase other things that you will have to pay from your earned income. Except for emergencies, only borrow money to buy things that will earn enough to pay for themselves. Adjust your standard of living so you can invest at least 10% of your earned income, and more if possible, into safe and secure investments and then watch them grow.
About now, you’re probably thinking, “Yeah, right! That sound great, but it’s easier said than done.” I agree! But the reason becoming financially independent isn’t easy is because it requires one of the most difficult behaviors to develop�discipline. Just as the road to Hell is paved with good intentions, the road to financial disaster is paved with the lack of discipline.
In a world where we’re bombarded with a steady stream of advertising urging us to buy now and make payments it’s difficult to maintain the discipline to slow down, wait, plan and then make sound financial decisions. Money stimulates spending and spending can become addictive. Fighting an addiction to spending can be as difficult, if not more so than fighting an addiction to drugs or alcohol. Doing either requires discipline.
So, to simplify this tip, improving your discipline will do more to improve your finances than just about anything else. The best financial plans go right down the drain and going broke becomes a common problem when discipline is compromised. Whether you win the lottery, inherit a fortune or simply bring home a paycheck, without the discipline to resist impulsive spending and jumping into risky ventures you could become another statistic on the road to financial disaster.
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