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Five reasons why rich people go broke

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We have all heard the saying that a fool and his money are soon parted.  
 
I know some smart reader will think – “How did the fool get his money in the first place?” but putting that aside, you’re likely to have come across a few people who despite having the trappings of being rich, seem to keep throwing their money at bad investment schemes and always losing money.
 
In my 10 years as a mentor to over 2,000 successful and not so successful investors and businesspeople, I’ve seen many what some would call “rich people” lose much of their money for no “apparent” good reason.
 
And it’s not the market conditions that cuased the problem — they just can’t seem to hang on to their money, let alone make it grow.
 
So why are some people, particularly those who have a reasonable sum of money,  destined to lose their money?
 
Well…it has very little to do with fate and everything to do with their bad money habits and their “poor” mindset.
 
Here are some of the reasons I’ve seen some rich people go broke:
 
  1. They never had to manage a large sum of money before.
 
I’m sure you’ve heard how many lottery winners have lost most of their winnings after a few years.
 
I’ve seen much the same happen to those who inherit a large sum of money.
 
These people have earned an average salary for most of their life and then come into a windfall.
 
The problem is they’re ill equipped to handle their new bank balance and it quickly dries up  — usually after they have bought the expensive car, or a similar vanity purchase or depreciating asset.
 
If your personal development doesn’t catch up with your bank balance, its likely you’ll soon be parted from your money.
 
  1. They are too generous
 
There is nothing wrong with helping friends and family pay for things here and there if you can afford to help out, but often people who have come into lots of money don’t know where to draw a line.
 
Friends from their past seem to show up wanting them to invest in their new business venture and they may feel obliged to help. Perhaps a cousin has a huge credit card debt that needs wiping. Bad idea.
 
Business is business, and you need to look after your money rather than focusing on giving it away otherwise, pretty soon, there will be nothing left to be generous with.
 
  1. They get the wrong advice
 
Advice is a tricky area.
 
People either get the wrong advice by listening to so-called “professionals” who are really sales people with vested interests or they don’t get any advice at all.
 
The latter group is made up of those who think they can invest in a new area, such as property, without consulting independent experts. They may have read one too many get-rick-quick success stories and think investing is a cinch.
 
Wrong!
 
  1. They were never taught financial literacy as children
 
When growing up, we are taught how to drive, to read and write, and how to compose a stand-out resume.
 
But how many of us were actually taught how to manage money?
 
Did your parents ever sit you down and explain the importance of understanding terms such as diversified risk, compound interest, budgeting and managing cash flow?
 
Did teachers ever explain the ins and outs of raising capital for business ventures, trading in the stock market, or selecting the right superannuation fund?
 
If you answered ‘yes’, then you are among the lucky ones.
 
Most young people enter the adult world with a poor understanding of managing finances and it is little wonder so many of them struggle to build their wealth or hang on to it.
 
  1. They are afraid of being rich
 
Many of us aspire to be wealthy.
 
However for many who come from poor backgrounds, being rich may seem like the preserve of an elite few.  It’s a club that you may wish to enter but you don’t feel like you deserve to.
 
In these instance, people often subconsciously sabotage their finances because, deep down, they don’t believe they deserve to be wealthy.
 
On the surface they may be talking about their desire to be financially free, but they are acting in ways that cause them to squander any money they earn.
 
If this sounds familiar, the only option is to examine your deeply held insecurities about money and change them so they no longer hold you back.
 
So there you have it – the rich can sometimes go broke too.
 

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Michael Yardney

Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.

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