Lucky day Guarding a windfall
Sudden riches can make you careless, Hannah McQueen warns.
We’re all familiar with the daydream. You know the one – the stars align, you hit lotto’s jackpot and all of your financial worries disappear.
It’s a weekly indulgence for some. Privacy or no privacy, the US$560 million (NZ$773m) jackpot a US woman won last month would do just nicely to fund a life of private jets, oversized diamonds and Lamborghinis.
But when the daydream is over, here’s the reality: you’ll likely be broke within seven years, just like 70 per cent of lottery winners (If you can’t see how anyone could burn through that much money, just ask Mike Tyson.)
Winning Lotto is about as likely as being struck by lightning, but whatever kind of windfall you receive – an inheritance, significant promotion or huge commission payment - the result is largely the same.
In fact, the evidence shows those who inherit a fortune, usually spend a fortune. A US study found 70 per cent of wealthy families lose their wealth by the second generation, and it’s a whopping 90 per cent by the third.
Many ‘‘trustifarians’’ (beneficiaries of large trusts) suffer from a severe case of ‘‘failure to launch’’.
A lack of resources is not an issue for them, but a lack of resourcefulness is – which ironically is brought on by the surplus of resources.
More money, especially when received as a windfall, is seldom the answer to your financial woes.
It does create opportunity and releases the cash flow pressure valve, which is great, but it’s usually short-lived.
It then lulls you into a false sense of security that the money will never run out, so your spending runs on (and on and on) until you’re more or less back where you started.
It doesn’t teach you how to manage money, how to grow wealth, or how to hustle.
It doesn’t change your behaviour or relationship with money, which accounts for 80 per cent of financial success.
When the money comes in too easily, it slips through your fingers just as effortlessly.
Don’t get me wrong, any pay increase or side hustle should be applauded, but when we earn more, we tend to take it as permission to live larger and monitor our money less carefully.
We all want enough money to not have to worry about money, but the more comfortable we feel, the less we care – and the less we care, the less care we take.
This is how people on six figure incomes can still be poor. The definition of poor is not just linked to income levels, but your cash surplus.
Poor is when there is too much month left at the end of your money. If you have no money left over you are still poor, whatever your pay cheque says.
That pay cheque getting much larger is not a cure-all either. A new role and more money usually means longer hours and more responsibility to justify your employer’s investment in you.
That’s going to affect your work-life balance and your family, so if that sacrifice fails to translate into real financial progress, the pressure will be borne by your personal relationships.
Even if you get the pay rise you deserve, when you inflate your lifestyle to absorb that, you will still be poor. Possibly driving a nicer car, but still broke.
Unless you understand your relationship with money and have a strategy to grow it, having more coming in usually just means more going out.
Income and progress are independent concepts. Having one does not mean you will have the other, no matter how big the jackpot.
Hannah McQueen is a financial advisor and author.
''When the money comes in too easily, it slips through your fingers just as effortlessly.''