Lottery Winners

Many statistics about lottery winners are published citing that 70% of lottery winners end up in bankruptcy within 5 years. This is an exaggeration but the truth is that nearly 30% actually do go broke. Another troubling consequence of a huge windfall is often depression, alcohol and drug abuse. Winners report feeling isolated and alone as friends and relatives hate them because of their new found status.

What it means to be rich

I would love to have someone do a study of rich people who earned their money over many years through hard work and self discipline and see whether they have the same problems as lottery winners. I have a sneaking suspicion that it wouldn’t be the case.

I think that having a solid financial education would seriously change these troubling statistics.

I used to fantasise about winning the lottery and the mind game would go like this:

“OK, I’ve won a million dollars. Now let’s see, how am I gonna spend this…

-I’ll pay off my debts

-I’ll buy a huge house

-I’ll give X amount to my family

-I’ll go on a sweet vacation

-I’ll buy a fancy new car

-I’ll get that new big screen TV

-I’ll take what left over and put it in a savings account or maybe invest it by giving to the guy at the bank.

This is probably similar to how most people think when confronted with a windfall. Whether it’s the lottery or an inheritance it often sounds the same. Even the last point gets neglected as there is usually nothing or very little left over to invest after we bought a bunch of cool stuff and gave away large sums to destitute relatives. We are trained to think that if we get money, then we need to figure out how to spend the money.

Common things that people with newfound money think:

“Money is for spending. I don’t understand what else to do with it”?

“I am rich now so I can spend lots of money”.

“I am a millionaire so I am going to now live the millionaire lifestyle! Yay!”

The REAL Millionaire Lifestyle

OK let's observe how REAL rich people approach money and spending.

Like I have written about before, most rich people are business owners who built up their fortune over a long time. They didn’t come by it easily or quickly. Getting rich slowly is the norm, not the exception.

Once you wrap your head around that then you start to ask a few questions.

If you owned a million dollar business, what would the cash flow look like?
If you owned a million dollar business, what would the business do?

If you owned a million dollar business, you would generally be, first of all, offering something of value to people. People would come to your business and see that you offer a product or service that they want. Then, after they have considered your value proposition, they would give you money in exchange for the value you provide. This is simple commerce. You would then pay your business expenses, your employees, and your taxes and then the profits would be what’s left over. Then you would decide how much to put back into your business to keep it healthy and perhaps grow it. After all of that, you would pay yourself something. This is what you live on. This is your spending money. You would use this for your life. This money represents how rich you actually are.

If you want the millionaire lifestyle, you need to grow and scale your business so that the money left over after everything else equals your desired spending quota. This is usually a percentage of the value of your asset or business.

So if you want to spend a million dollars a year, then your business had better produce enough to pay its operating expenses, and then, still have a million dollars left over to give to you. Then you need to pay your personal taxes. So your business must do very well.

Now, If we were to approach having this “business” from the perspective of a lottery winner then it becomes a greek tragedy. We have a million dollar windfall (business). So now we start to sell off pieces of the “business” in order to buy stuff (This is spending your windfall). Eventually we sell (spend) the whole thing and we have lost the million dollars, and now we have no business. Seems ridiculous doesn’t it? Yet this is how most people think about a windfall. It is to be spent.

Treat money like an Asset

If you suddenly win the lottery or come into a huge sum of money somehow, you might consider your new rich lifestyle in the same way that a traditional rich person does. Don’t ever touch the principle. Take the whole sum of money and create income from it. This is usually done by investing it. You can invest in a myriad of ways, and most are not that complicated.

Please be careful as there will be many con men who come out of the woodwork to try to “help” you invest your new money. I am not a fan of giving my money to other people to take care of - as I have to ask who are they most concerned about benefitting? Probably not me.

Once again, financial education comes to the rescue. If you have taken the time to educate yourself on the workings of money and wealth, you would see the windfall as an opportunity. You would know exactly what to do with it, and would have experience in most forms.

If you have read one of my books, you would see that you can invest like the rich with small amounts of money. This not only grows your wealth and gives you a solid plan to become financially free, it also would prepare you in the event that you ever came into huge sums of money. All you would have to do is scale the system you already have in place. It’s a no-brainer. Then you would have income forever and not have to suddenly figure out how to be rich. You already know how, because you were doing what rich people do already.

You wouldn’t have the psychological game to play either, as your mindset would already be aligned with wealth and cash flow principles. You would simply be further along the path you had already laid out before you. Your dreams are that much closer to reality.

Our weird ideas about wealth have been perpetuated by Movies and TV shows that depict rich people as eccentric white people who wear top hats and monocles and do nothing all day. This is a stereotype that just isn’t true anymore. The rich aristocracy of old are actually very rare, and even they understood the power of income over capital. In your typical Jane Austen novel they will gossip about the young eligible bachelor gentleman and declare that he is “worth 700 pounds a year”. This is referring to his income from his estate. Even over a hundred years ago they understood that it would be just plain foolishness to spend your estate. You need your estate to generate income. This is your true wealth. This is the measure of how rich you actually are. It is defined by how much to you EARN from your assets. How much you receive in passive income from the business or investments you own is your rank in society.

You should take your windfall and use that money to buy assets that generate income.

Real Estate

You could buy properties that you rent out to tenants. They will pay you rent each month and after you pay property taxes, expenses etc, you can keep the rest as income. Pretty sweet. This is a time-tested wealth creation strategy and there is a gigantic amount of information available out there to help you learn this world. Most rich people keep a significant portion of their wealth in real estate holdings.

Business

You could buy an existing business or start one of your own. This would be a great way to not only put your money to work for you, but to add value to the world. Businesses create valuable products and/or services for people. This hopefully solves people’s problems in some way and adds value to their lives. This also can provide jobs for other people and stimulate the economy. Our capitalist society is driven by businesses. There are millions of different businesses that you can start. Look for a need.

Stocks

As I suggest in my book, BYOB: Be Your Own Bank, you could invest in dividend bearing stocks and live off of truly passive income. This would be a wonderful way to live the millionaire lifestyle and have it be sustainable for the rest of your life and for your heirs. Family wealth is a matter of ownership. Liquidating assts is a last resort. Always build your “rich” lifestyle based upon the income you receive from your assts.

It’s all about the Benjamins

This perspective would be well suited to rock stars, professional athletes and other types of highly paid people. Often times, a person making millions of dollars from a special skill or ability spends everything they earn and more, just like us regular folks, and then when the gravy train ends, they are destitute.

Theoren Fleury, the professional hockey player claimed in his book, Playing with Fire, that he earned over 50 million dollars in his career in the NHL, and spent every last dime. He wasted the money on gambling, girls and drugs. Did he think that it would last forever? No, he never thought about it at all. He didn’t have the financial education to allow him to make better choices. It breaks my heart to hear about things like this. I hear that the vast majority of NFL players are flat broke within a few years of their careers ending. We have all heard about MC Hammer and his financial problems.

I know what it is like to be broke. I’ve been there. It SUCKS. Life is really hard when you have no money.

I also know how tempting it is to spend money when you have it. The finer things in life are designed to make us feel good about ourselves, make life easier and to give us the illusion that we are on top. Emotions often come into play when money is concerned. But if we educate ourselves about wealth, money and cash flow, we will always have a realistic perspective as to our own net worth, our actual level of richness, and how much we REALLY have to spend.

If you make a million dollars a year, you make a lot of money. If you spend that million dollars year, then you are actually poor. If you invest that million dollars and live off of the profits, you may live a slightly more conservative lifestyle in the beginning. If you continue to invest a million dollars a year and grow your assts, in a short period of time you will earn a million dollars a year from your assets and your original source of income becomes gravy. You don’t need it. If you earned that million dollars a year from being an athlete, you don’t need to worry about getting injured or getting old, your income will continue forever. Your lifestyle doesn’t need to suffer when you retire. The same holds true for everyone. If you invest your money, you will eventually be free to quit your job and keep your lifestyle. Freedom comes from controlling the source of your income, and keeping that source growing and healthy.

You Can Be Rich NOW

Being rich is actually possible for anybody. Most rich people don’t play the lottery as it tends to reinforce a mindset of “something for nothing” Gambling is similar. Real wealth is created by providing value to the world and exchanging that value for something else of value, usually in the form of cash. A lot of us exchange our time and experience for money.

So even though windfalls like the lottery are rare, you can still be prepared for it by learning about money and investing. Financial education is imperative to being prepared for more common windfalls like inheritances, work bonuses and tax returns. The principles of wealth are relevant to your life no matter how much money you make. You can apply these principles right now. My books and courses explain how, as well as many others.

They say luck is when opportunity meets preparedness. By treating money like the rich do, and developing your cash flow plan, you are prepared for “luck” when it comes.