Big Money Makes You Poor
A quick windfall sounds like the answer to so many problems. But for some pro athletes, hitting the big time can put them right into the poor house. I’m the first to admit I’m not a sports fan. I’ve probably shared in a few “look at the dumb jocks” comments in my time, but even I was surprised when a friend pointed out these stats in an article on Sports Illustrated:
• By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.
• Within five years of retirement, an estimated 60% of former NBA players are broke.
How is it possible with all of the money they had to start with? The stats for lottery winners are no better. Large sums of money don’t seem to be very good for your bank account. It’s so easy to point fingers, to quote “easy come, easy go” to be tempted to laugh at their misfortune. But I wonder if you or I would do any better in their shoes?
Where did it go?
Think back to the first job you had after college. Remember what you made? What your apartment looked like? Do you remember what you planned to do when the real money started rolling in? How are you finances now? Most of us, myself included are rich compared to our 21 year old selves. Yes, we have more responsibilities now but we also have more resources. So why didn’t things turn out quite the way we planned?
Economists will tell you that the vast majority of the time expenses increase along with, or sometimes a little ahead of increases in revenue. When we get a raise often the first thought is “Sweet now I can spend more” rather than, “oh good, more for savings/ paying down debt/ investing for the future.”
I don’t know if it’s human nature or our own naïveté but so many of us are quick to reach forward. Debt reduction specialist Dan Foreman, writer of The Dollar Stretcher is always telling his subscribers that the exact opposite of this behavior is the way to financial freedom.
“Start with the bill with the highest interest rate and pay that off first,” he tells his readers. “Once that is paid off, take the whole amount of the payment you were making and it apply it to the debt with next highest interest rate.” Instead of taking the difference and spending it, stay at the same income to pay of debts faster. It’s so simple on paper isn’t it? It gets so much more complicated at the mall (or on eBay if you prefer.)
Richer than you think
The current ad campaign for one of our local banks says “You’re richer than you think” that’s so true. There are days when I don’t feel rich – especially when I’ve had a costly repair job because I ignored the warning signs – but the truth is, I am rich. I ate three times today. I own a car. I have a place to live that’s clean and quiet and safe. I have people who love me. It’s a lot. You don’t have to be a pro ball player or a lottery winner to be wealthy. In fact, you might come out ahead if you’re not.
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