How To Go From $5,000,000…To Broke

There’s a show that comes on cable every now and then called “How Winning the Lottery Changed My Life.” The show focuses on past lottery winners – and, for the most part, how they squandered their millions.

It’s unfortunate, but 95% of lottery winners are bankrupt five years after winning the lottery. People who receive a financial windfall in the form of a settlement don’t seem to fare any better.

I don’t know the actual statistics, but I personally know only one person that received a windfall and did something intelligent with her money.

Managing money is not something that comes naturally to most of us. Good money management is a skill that is taught and learned over a period of time.

I want to tell you a true story about a couple that I know of who came into a large sum of money some ten years ago – and how they blew the whole thing.

When average people experience a $5,000,000 windfall, it is usually the result of either a lawsuit or a lottery win. In this particular case it was a lawsuit. After years of deliberation, a settlement was reached, and the couple was awarded $5,000,000.

The first thing they did was buy five brand new cars: an Audi, a Mercedes, a BMW, a Porsche, and a Range Rover. Then they bought a house in Florida for $1,500,000, because they had to have a four-car garage to park their cars in. To furnish the inside of their house they spent $100,000. To beautify the outside, they spent $90,000 on landscaping.

At this point, we are already down to around $3,310,0000 – and there have been no investments made. Not one.

Property taxes, and maintenance on the property, came to a few grand per month. By “a few grand”, I mean close to $5,000. That’s $60,000 a year just to maintain your home!

In addition, let’s not forget that they had to buy each of their adult children a car – and take many  fabulous, luxurious vacations.

Now, by no means am I suggesting that you not enjoy your newfound wealth. You should allow yourself to experience all the wonderful things you would not have been able to otherwise!

However…there is always a smart way and a not so smart way of doing everything in life.

The smart way enables you to do the things you want to do without going broke.

The not so smart way simply leads you to the poorhouse.

One of the main reasons I think people lose their minds when they come into a large sum of money is its liquidity. Liquidity is the ease in which something may be converted into cash. What could be more liquid than cash?

Remember when you were a child and your parents gave you a dollar bill? That dollar bill burned a hole in your pocket. You couldn’t wait to spend it.

Having large amounts of cash can be intoxicating to people that have never had money before. All they know how to do is spend.

Well, I have a theory as to how people that find themselves in this situation can overcome the urge to spend money senselessly.

Like anything in life, it is about your perception.

People with newfound wealth tend to have the wrong perception when they come into money.

I often tell people that if you come into money, you should treat it as though you inherited real estate.

For example, lets’s say your long lost uncle died and left you an apartment building worth $5,000,000. That’s great! But the apartment building is not a liquid asset. You can’t just go out and start buying things with it. For all you know, the building could be underwater, and you could actually owe more than what the building is worth!

In this hypothetical scenario, that’s not the case; the apartment building you now own generates $30,000 a month in positive cash flow. Positive cash flow is the difference between your income and your monthly expenses.

That $30,000 is all the cash you have access to on a monthly basis. You can still blow the entire 30 grand each month you receive it. But you’re less likely to stretch yourself beyond what  your monthly cash flow can cover. You’re kind of forced to be disciplined with your spending.

The importance of viewing windfall money as a non-liquid asset is paramount in your ability to build and hold on to wealth.

That’s how Warren Buffett views money – as a vehicle that is a means to an end. Not as a means to buying anything you can get your hands on!

 

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

 

 

 

 

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Introducing Wealthy Joe Investment Management!

About three years ago, a very good friend of mine won a longstanding legal case that revolved around being wrongfully terminated.  The amount of the award wasn’t life-changing in any way, shape or form, but it was better than nothing. and gave her much-needed funds.

She asked me what she should do with the $16,000 she would have left after paying back personal loans to her mother.  My advice at the time was to take the entire $16,000 and invest it.

She knew absolutely nothing about investing, so I told her to create the account and provide me with the user name and password, and I would take over from there.

Now – I must remind you that I eat, sleep and think about investing.  If it were up to me, the market would be open seven days a week.  That’s how much I enjoy it.

Before I made my first purchase, I thought long and hard, because I treated her money like it was mine.

I asked her what her financial goal was, and when she would need this money.  She did not have any money saved for retirement and did not need the money in the near future, so my game plan for her was to be ultra-aggressive and invest in high-growth companies.

I invested in the same companies that I would have bought for myself if the account were mine.  In the 3 years I managed the account, the value went from $16,000 to over $60,000. 

Watching her account grow made me as happy as if it were my own.

It wasn’t until recently that I asked myself: Can I do this for other people?  And the answer I came up with was: yes, I can!

Look, you can invest in a mutual fund.  And if your company matches, you should invest in its 401(k).  However, you should always invest in individual stocks.  No 401(k), no mutual fund on the planet, will ever be able to compare with the growth of an individual stock.

But if you’re like many people, you don’t have the time and/or the inclination to research companies and select your own stocks to invest in.

You can now outsource this task, to me.

For only $10.00 per month, I will actively manage your investment account as though it were mine.

If you are interested, please email me at wealthyjoeinvesting@gmail.com to get started.  Also, please reach out to me with any questions and/or comments!

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)