Sudden Wealth Syndrome
There are many ways to confuse a human being: giving him too much to eat, cutting off the internet connection, making him/her watch Only God Forgives, or have him win the lottery or have a very sudden increase in wealth.
I'm going to talk about the last one.
Let me get started with the tale of MC Hammer, a convenient example to help me pave the road to explaining excessive personal spending. The rapper, who got over 33 million US dollars just with his third album, proceeded then to go on a spending spree that is more common among the newly rich than anyone could possibly suspect.
To start it up nicely, he bought a house for 12 million US dollars (which later on he couldn't afford to keep). Did I say house? Well. This humble crib had a bowling alley, a recording studio, a 33 seat movie theater, tennis courts, pools, and a couple other much needed goodies. This house ended up being sold for less than half its original price.
Hammer also hired around two hundred people, most of them friends and aquaintances, to work at his place, many of them with a monthly pay of $500,000.
As you can imagine, this was nothing but the beginning of a lavish lifestyle with an even more lavish spending, which included more than exotic cars and caviar.
Ultimately, MC Hammer ended up with a debt of $13 million, and eventually filed up for bankrupcy in '96.
MC Hammer is not the only celebrity to have a riches to (well, not really rags) rags story.
Despite amassing millions and millions of dollars with his career, we also have Michael Jackson, who amazingly still spent more than he made, and ended up with around $400 million in debt by the time he died. Let's just say that the Neverland Ranch was not a sensible move.
He even owed money to a Sheikh.
The list is endless.
But another curious issue, other than spending more than one gets, is suddenly getting a lot of money. You know, like winning the lottery.
Just like celebrities who are unable to control their finances, one very common happening is that of someone winning the lottery and being left without knowing what to do. What usually follows is a spending spree with no end, which renders many lottery winners completely penniless after a couple of years. Most commonly, people give plenty of money to other people: friends and family. And waste the remaining in houses, cars, and an unsustainable lifestyle.
There are accounts of people who didn't even check how much money they had in their accounts for months, just spending at will in the most outrageous manners.
Without proper financial planning and some basic prior financial knowledge, many people fall in the trap of thinking in invincibility terms. However, money is finite, and our ability to spend it is not. The most correct thing to do in these cases is to first let the money sit for a couple of weeks, while the mind adapts to the lifechanges this will bring, and how to react to them. Also, with such huge amounts of money, if wisely invested, one can have a lifetime pot of gold. Not just a few years of a spending splurge.
The worst possible outcome is ending up in a debt that wouldn't be created in the first place. That's why it's wise to stay out of now available lines of credit, and of investments which are too risky or unable to be kept.
Such a lifestyle shift has a big impact on someone who isn't used to such changes. It's already common having millions in debt and unable to control finances, it's no wonder there is not enough financial preparation when riches do knock at your door.
While winning the lottery seems like a lifelong dream for many, it has actually not been a blessing for everyone. In truth, it was a blessing to lesser than many would like to admit. But this is more than granted.
No matter how big or how small is your stash, make sure you keep an eye on it.
I'm going to talk about the last one.
Let me get started with the tale of MC Hammer, a convenient example to help me pave the road to explaining excessive personal spending. The rapper, who got over 33 million US dollars just with his third album, proceeded then to go on a spending spree that is more common among the newly rich than anyone could possibly suspect.
Hammer also hired around two hundred people, most of them friends and aquaintances, to work at his place, many of them with a monthly pay of $500,000.
As you can imagine, this was nothing but the beginning of a lavish lifestyle with an even more lavish spending, which included more than exotic cars and caviar.
Ultimately, MC Hammer ended up with a debt of $13 million, and eventually filed up for bankrupcy in '96.
MC Hammer is not the only celebrity to have a riches to (well, not really rags) rags story.
Despite amassing millions and millions of dollars with his career, we also have Michael Jackson, who amazingly still spent more than he made, and ended up with around $400 million in debt by the time he died. Let's just say that the Neverland Ranch was not a sensible move.
He even owed money to a Sheikh.
The list is endless.
But another curious issue, other than spending more than one gets, is suddenly getting a lot of money. You know, like winning the lottery.
Just like celebrities who are unable to control their finances, one very common happening is that of someone winning the lottery and being left without knowing what to do. What usually follows is a spending spree with no end, which renders many lottery winners completely penniless after a couple of years. Most commonly, people give plenty of money to other people: friends and family. And waste the remaining in houses, cars, and an unsustainable lifestyle.
There are accounts of people who didn't even check how much money they had in their accounts for months, just spending at will in the most outrageous manners.
Without proper financial planning and some basic prior financial knowledge, many people fall in the trap of thinking in invincibility terms. However, money is finite, and our ability to spend it is not. The most correct thing to do in these cases is to first let the money sit for a couple of weeks, while the mind adapts to the lifechanges this will bring, and how to react to them. Also, with such huge amounts of money, if wisely invested, one can have a lifetime pot of gold. Not just a few years of a spending splurge.
The worst possible outcome is ending up in a debt that wouldn't be created in the first place. That's why it's wise to stay out of now available lines of credit, and of investments which are too risky or unable to be kept.
Such a lifestyle shift has a big impact on someone who isn't used to such changes. It's already common having millions in debt and unable to control finances, it's no wonder there is not enough financial preparation when riches do knock at your door.
While winning the lottery seems like a lifelong dream for many, it has actually not been a blessing for everyone. In truth, it was a blessing to lesser than many would like to admit. But this is more than granted.
No matter how big or how small is your stash, make sure you keep an eye on it.
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