Mike Tyson, the former heavyweight boxing champion, reportedly made $400 million over 20 years. Despite the hefty career earning, in 2003 he declared bankruptcy with $27 million in debt. Tyson liked to live large and spent millions on mansions, cars, jewelry, his entourage, and even paid $140,000 for two Bengal tigers that cost over $125,000 a year just to maintain! Former NFL quarterback Vince Young blew through $26 million in just six years. He would buy 120 tickets on a single Southwest Airlines flight just so he could fly alone. Professional athletes make millions of dollars a year, but every year many of them unfortunately run into major financial problems. In the NFL, the average salary is $1.9 million, but 78% of former players are in bankruptcy within five years of retirement! In the NBA that figure is 60% even though the average salary is $5.5 million. Professional athletes making millions aren’t the only ones with money woes.
Evelyn Adams won $5.4 million from the lottery in 1985 and 1986. Today she resides in a trailer park after gambling it all away. Sharon Tirabassi, a single mother who had been on welfare, won over $10 million in 2004. She spent everything on a “big house, fancy cars, designer clothes, lavish parties, exotic trips, handouts to family, loans to friends.” Less than a decade later, she is living in a rented house, working part-time and back riding the bus. According to The National Endowment for Financial Education, 70% of people who get sudden windfalls such as family inheritances, divorce settlements, cashed-out stock options, and overnight business successes lose that money within several years.
Genesio Morlacci, was an immigrant from Italy, had only a 3rd grade education, and after working in the dry cleaning business, worked as part-janitor for the University of Great Falls in Montana. Upon his passing in 2004 he left $2.3 million to the University, the largest amount the school ever received at the time! Margaret Southern was a retired special-needs kid teacher who lived a very modest life. When she passed away at age 94 in 2012, the Greenville, S.C. community where she lived was shocked to learn that she had left $8.4 million to the Community Foundation of Greenville.
How is that people making millions could end up being so poor yet those making only a small fraction of that can be so rich? According to numerous studies, becoming wealthy and financially independent is always one of the top goals people have in life. Money issues are also one of the biggest stressors in life, with it being one of the top reasons people get divorced. With so much at stake with your personal wealth, you would think people would do more to handle their money better.
Surprisingly that is not the case! For those that set New Year’s resolutions to manage their money better, only 8% ever achieve them! According to a national survey, about 36% of workers have less than $1,000 in savings and investments and 60% have less than $25,000. 58% of workers and 44% of those retired say debt is a problem. Only 44% have tried to calculate how much they need to retire, and only 18% of workers say they are confident they have enough saved for a comfortable retirement!
The survey shows that if something doesn’t change, we will have a retirement crisis soon. Our national debt as of April 2014 is more than $17.5 trillion dollars (that is 14 digits!). Just to put that in perspective, the U.S. National debt per taxpayer is $151,939! How many do you know that have amount just sitting around! The reason this is important is in the future, the only way to bring down our debt and deficit is to either raise taxes, cut spending, or a combination of both. This will impact our income and benefits such as social security. This doesn’t even count state and local taxes that may be tacked on. Less private companies now are offering Defined Benefit Pension Plans to their employees. In 1979, 62% of private companies offered a Pension, now it is less than 7%. The key thing to note is that we can’t rely on our employer or the government to take care of us. We have to be responsible for our own retirement and financial independence.
What I first want to do is define the terms wealth and financial independence. Contrary to what many believe, they are not the same. Because many confuse the terms, people miss out on the fact that they are already wealthy and by the time they realize it, it is too late. What is it?
- Wealthy - It is a mindset and has nothing to really do with money. Our relationships, family, profession, and the fact that we are alive and breathing is wealth. We are as wealthy as we make ourselves to be. This is an important distinction to make because there are some things that will never satisfy. If we believe being wealthy is tied to a certain amount of money, or an emotion we feel, or even on someone else, then we will never feel wealthy. It is human nature. Unfortunately many people go through life with the wrong definition of wealth. You choose to be wealthy, it is a mindset, and you can have it now. Most of the wealthiest people I know are the ones that leave the best legacy for others. The proper SMART mindset is the one that will keep you wealthy, not just become wealthy. It is a decision and commitment that you make to be wealthy. Take out a piece of paper and write down the good things that have happened to you. Write down things that you are grateful for. Don't worry about the bad things that have happened to you. You can change the good without changing the bad. Need some help? If you are reading this, then you can read and most likely speak English, something that many people study a lifetime to do. If you are reading this chances are you now how to operate a computer, a necessity in this day and age. If you live in a developed country, you have the basic necessities that many don't. Bottom line is that there are many things we are blessed with and it adds to being wealthy! Don't waste anymore time! Enjoy the wealth you have now!
- Financial Independence - There are many definitions of financial independence. It can mean that you have no debt, you have the freedom to do what you want, you have enough wealth to live without having to work, or enough assets to generate more income than expenses. All of these are good definitions. I believe that true financial independence is that you are able to maintain your lifestyle and standard of living (difference between standard of income) throughout the rest of your life without having to work. This means no matter the effects of inflation, big unexpected expenses, or a large correction in the stock market, you will still be able to continue your way of life without having to rely on friends, family, or going back to work. According to a recent survey, investors consider $5 million to be the new benchmark for financial success. They believe once you’re past $5 million, you have reached true financial independence and don’t have to worry about how or where you spend it.
Why do people want to be financially independent? They don’t want to worry or stress about money when they are retired. They want to pursue their dreams and passions, and don’t want be dependent on family or other entities for money. Many spend a lifetime trying to become wealthy and believe that it is out of their reach. However when you study the wealthy and how they got there, it isn’t rocket science. In fact anyone can do it, but it takes SMART thinking, investing with SMART strategies, investing in SMART places, and SMART (not just hard) work to get there.
Yes, this is easier said than done. If we are the richest country in the world, then why is it so difficult for us to plan for retirement? Why do people fail to manage their finances? Better yet, why is it that more of us aren’t becoming wealthy? In the twenty years that I have been in the finance industry, usually the biggest excuse is “I don’t make enough money!” But as I showed with the examples of a janitor and teacher, regardless of income, you can still become wealthy. In fact one of the biggest myths in becoming wealthy is “I need to make more money to be wealthier.”
Just ask any of the lottery winners and professional athletes that squandered their millions, and in some cases hundreds of millions, if that is true! Then what is stopping people from achieving their goal of financial independence? The top reasons are that they:
- Don’t know how
- Don’t make the time
- Don’t have the desire (or are afraid to, intimidated, or bored of the topic!)
- Combination of all three!
One of the biggest complaints I hear of the financial industry is that we have made things so complicated and set a culture where the more complex the product or service, the more valuable we think it is. I will tell you this upfront, that isn’t necessarily true and often the best advice, is the simplest advice. Many of the professional athletes shelled out millions for what they thought were the top financial advisers only to be burned later on.
Once you understand what it means to be wealthy and financially independent, you have the basic knowledge needed to make smarter decisions, manage your finances smarter, and put you on the path to financial independence and wealth! I firmly believe that if more people make smarter financial decisions, then our communities, states or provinces, country, and the world is much better off. It is easy to blame Wall Street and the Big Banks for The Great Recession of 2008 and 2009. Without a doubt they do deserve their fair share, but I also believe we all have a responsibility to not be taken advantage of, avoid keeping up the Joneses’, and manage our expectations. Once we do this, we can make sure we leave a better future and legacy for our children!