Making a Ton of Money Won’t Make You Rich

You never think it’ll happen to you.

If you ever won a million dollars, you’d cherish it and use it as a springboard to a wonderful and fulfilling life. You’d never lose it all.

Actually, research shows you easily could. Nearly half of all people who win the lottery go on to spend their entire winnings within 5 years. That’s…astounding.

It’s not just lottery winners who hit a big windfall and go on to mismanage their finances. We’ve all heard the stories of professional athletes who let their spending get out of hand, driving themselves into bankruptcy.

………Remember Mike Tyson?

“Iron Mike” was arguably the scariest man to step inside a boxing ring and the heavyweight champion of the world at one time. Keeping himself afloat financially proved to be the hardest task of all.

In 2000, Tyson’s accountants announced that he was more than $3 million in debt – in a year where he had made nearly $66 million :/

How is that even possible? Well, Tyson summed it up best when he said “The problem was that I spent $62 million that year”. Yup. Makes sense.

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The former boxing champ was a veritable cash machine to himself and others in his entourage. The money flowed judiciously – on fancy jewelry, giant mansions, partying and most famously, Siberian tigers. Despite making over $300 million during his career, Tyson ended up declaring bankruptcy in 2003.

It’s easy to look at these stories and conclude that the people in these examples are just outliers, but that would be missing the point. In the end, it’s not about how much money you make…its how much you keep that matters. You can make all the money in the world, but what’s the use if you squander it all and are left penniless in your old age?

Money without financial intelligence is money that you simply won’t have for long. Most of us are taught to work hard and make money but very few of us are taught how to manage our money.

You don’t need to have a PhD. You don’t need to work at an investment bank or be the next Warren Buffet. Financial maturity is about a few simple truths and if you can really take them to heart you’re going to ahead of the curve.

Here are 4 simple things you can do to effectively manage your finances, and by extension, your life.

1. Cut out overspending

It’s very…simple. You should not be spending more than you make. Ever. If you follow this rule then you will never be in trouble.

Pay all your bills on time and pay off your debts as they arise. If you buy something on credit, then be sure that it is something you can actually afford. Even when it comes to big purchases like cars and houses, it makes sense to do the math and see if your budget can afford the monthly payments before diving in.

2. Create assets

Mike Tyson spent his income and a good deal more on things he would never see a return on. Frivolous things like drugs, women and cars. On the other hand, we have another boxing champion, Floyd Mayweather, who invests his money. Mayweather has a music label, a promotional company, a boxing gym and other business endeavors that generate income for him. He’s gone out of his way to create assets that work for him.

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There’s nothing wrong with working for a paycheck, but that money stops flowing when you stop working. When you create assets, your money works for you.

3. Save, save, save

You may earn a lot of money or you may earn just enough, but if you manage your money wisely and save prudently than you can always ensure that your quality of life measures up.

Focus on purchasing essential items first, and save a big percentage of what’s left over. Start now, make a budget, do what you need to do and do it now – don’t kick the can down the road.

Many pro athletes go bankrupt because of the justification they attach to their overspending and failure to save. They think because they’re earning a lot now they can have fun and that they can always wait until next year to take care of their finances. Then they injure themselves and their earning potential just…disappears.

Mike Tyson came out of retirement, overweight and depressed, to put on boxing exhibition matches at the age of 40 so he could earn some money.

 4. Diversify

You want to make sure you have money set aside for retirement but you don’t want to put all your eggs in one basket.

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If you’re putting money away for your golden years then you’re probably investing in something, but here’s the deal: you’re either a know-something investor or a know-nothing investor. If you’re a know-something investor then you do the work, put in the hours and research everything before you invest. Otherwise, if you’re not willing to put in the time, then you’re a know-nothing investor and you stick to a diversified basket of ETFs that you’re invested in for the long-haul.

Ultimately, it’s not the number on your paycheck that matters. It’s what’s in your bank account that counts the most. And having the right financial attitude goes a long way towards making sure that your bank account is healthy and thriving.

Real financial maturity and wise, prudent decisions are what will you keep rolling in the dough for years to come, and the next time you come into a windfall just think…what would Iron Mike Tyson do? And then do the opposite of that.

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