Your Money_ The Missing Manual - J. D. Roth [7]
Your Money And Your Life: Sudden Riches
Some folks believe their worries would vanish if only they had a six-figure salary. Others play the lottery because they think winning would solve their problems. But it's not how much you earn that determines how happy you are—it's how much you spend in relation to your income.
Take pro athletes: The average NFL player earns $1.1 million per year, and the average NBA player makes $4 million per year. Yet even these vast incomes sometimes aren't enough to cover what players spend. In a recent issue of Sports Illustrated, Pablo S. Torre described how and why athletes go broke (you can read his article at http://tinyurl.com/brokeathletes). He writes that after 2 years of retirement, "78% of former NFL players have gone bankrupt or are under financial stress. "Within 5 years of retirement, roughly 60% of former NBA players are in similar positions.
Lottery winners have the same kinds of problems. A 2001 article in The American Economic Review found that after receiving half their jackpots, the typical lotto winner had only put about 16% of that money into savings. It's estimated that over a quarter of lottery winners go bankrupt. Take Bud Post: He won $16.2 million in 1988. Within weeks of receiving his first annual payment of nearly half a million dollars, he'd spent $300,000. During the next few years, Post bought boats, mansions, and airplanes, but trouble followed him everywhere. "I was much happier when I was broke," he's reported to have said. When he died in 2006, Post was living on a $450 monthly disability check. You can read more about him here: http://tinyurl.com/budpost.
Of course, not every wealthy person is so profligate. In fact, according to Thomas Stanley and William Danko, most millionaires are careful with their money. In their classic book The Millionaire Next Door (Pocket, 1998), Stanley and Danko catalog the characteristics of the quiet millionaires—those who live in average neighborhoods, drive average cars, and work average jobs. These folks are able to build and maintain wealth because they keep their spending in check—even as their incomes rise. The authors say the three words that best describe the affluent are "frugal frugal frugal."
So even if you come into a windfall like an inheritance or a bonus—or even a lottery jackpot—take your cue from the frugal millionaires: Don't spend it all in one place. (Church, Charity, and Community has more about how to handle a windfall.)
Knowing that you have Enough can be better than having billions of dollars. If you're obscenely rich but aren't happy, what good is your money? Contentment comes from having Enough—not too little and not too much. But how much is Enough?
There's no simple answer. What's Enough for you may not be Enough for your best friend. And what you need to remain at the peak of the Fulfillment Curve (The Fulfillment Curve) will change with time, so Enough is a bit of a moving target. It's tough to define Enough, but there are some steps you can take to figure out what it means to you.
Understand your goals and values
If you don't know why you're earning and spending money, then you can't say when you have Enough. So take time to really think about what having Enough means to you. Discuss it with your family, and explore the idea with your best friend. Is being debt-free Enough? Being able to pay cash for a new boat? Having a million dollars saved for retirement? Decide what Enough means to you, and then write it down. If you don't have an end in sight, you're at greater risk of getting stuck in the rat race.
Note
Personal goals are so critical to financial success that you'll spend all of Chapter 2 learning