You may find it tough to empathize but newly rich people have financial woes that are often far worse than the problems you or I face. And no matter how much money you have, you should take notice of this. That’s because you can still learn a lot and save a fortune by avoiding the rich person’s blunders. Oh….and by the way, you might think you’ll never have to worry about being wealthy but you might be surprised.
There are lots of ways you might suddenly join the ranks of the blessed newly rich. You could inherit a fortune , sell the business, sign a contract with the Dodgers, win the lottery or make it to the top 5 on American Idol. If any of these things happen, you might think your financial troubles are behind you. Sadly that isn’t usually the case.
People who wake up wealthy face two main problems. First, because they don’t often understand how their money works and how to use it, they lose financial balance. They mistakenly believe that the cash is endless. This is why so many mega-success stories go down in flames. Here’s just a partial list of celebrities who went bankrupt at one time or another; Mike Tyson, Francis Ford Copula, Mick Fleetwood, Merle Haggard, Dorothy Hamill, Andy Gibb, La Toya Jackson, Meatloaf, Wayne Newton, Tom Petty, Burt Reynolds, Mickey Rooney, Nicolas Cage, Toni Braxton, Steven Baldwin, Jose Canseco and Gary Busey. I am confident that you can name lots more people to add to this list.
People who are wildly (and quickly) successful are usually very driven individuals. They toil vigorously toward the one goal of victory and grabbing the golden ring. This laser focus is fantastic because it accelerates achievement in any endeavor – but it comes at a price. Once they reach the top of the mountain, they are often at a loss when it comes to “what next”. They easily get mixed up with the wrong people and/or the wrong projects. Often these missteps lead to huge financial losses.
Either problem can be financially catastrophic. This is the point when they often rack up huge debts but find it hard to come up with the cash because they may be past their prime and don’t make the kind of money they used to make. As a result, they are stuck in a debt pit they can’t climb out of. They are ruined.
Two Prong Solution
In order for newly rich people to avoid falling into this trap, they have to do two things. First they have to understand how money works. That includes knowing how to budget, learning how investments really work and understanding the relationship between assets and income. That’s right – even the well-heeled have to “stoop” to learn these things. “Who’d a thunk it?”
The second part of the solution is to simply slow down. Rather than committing to new projects, people with new found fortune should consult a variety of advisors. If the person bringing them the deal is already on their team, they should seek out other financial advisors and tax advisors who don’t have a horse in the race. I am not a fan of business managers and CPAs who sell investments. This doesn’t mean the deals are always bad. It just means they have to be checked out more thoroughly.
The take-away for those not yet fabulously wealthy.
If it’s important for rich folks to understand budgeting and investments, it’s even more important to those who are building wealth. If the big shots need to be super careful before they make investments, how much more slowly should you tread?
You can learn a great deal from the mistakes of the newly rich. If you are already financially set, beware of these traps. If you are still on your way to financial independence, apply these same lessons and watch your wealth build that much faster.
Do you know anyone who amassed a great deal of money and ended up losing it? What were that persons greatest mistakes? Were they able to overcome that failure?