40-year old Jason worked as a casual laborer in a manufacturing company in Nairobi’s industrial area. He lived in one of the city’s slums with his wife of 9 years and 3 young children. His wife operated a small roadside hotel. She cooked food such as githeri (a mixture of boiled maize and beans),chapati and boiled beans which she sold mostly to busy people on their way home from work in the evenings.
Life for Jason’s family had always been a struggle. He and his wife did not have much chance of getting better jobs since none of them had gone beyond primary school. They both came from poor backgrounds. They had migrated to the city to look for a better future.
Jason loved European soccer and that was his favorite pass time. His love for soccer drove him to sports betting. He started doing it secretly because he knew that his wife considered any kind of betting a waste of money. She believed that winners who were paraded on TV and daily newspapers were fake.
Luck smiled at him when he won the KShs. 20 million jackpot! That was the time his wife discovered that he had been betting secretly the past 5 months. Jason was accompanied by excited family members who included his wife and siblings to a city hotel where he was presented with his check. He was asked by journalists what he planned to do with the money and he said that it was a lot of money which was going to change his life, so he would think about it slowly. Such an important decision could not be rushed.
Jason came to the city from a poor village around 500 kilometers from the city of Nairobi. One of the first things he did with the money he won was to buy land in their rural home for his widowed mother. He then proceeded to build for her a 3-bed-roomed permanent house and also bought her two cows. He bought a piece of land for his family a short distance from his mother’s new home and put up his family home.
The newly rich Jason resigned from his casual laborer job and relocated his family to their new home in the rural home. He was now the village celebrity. The sight of desperate relatives and villagers at his doorstep became a common occurrence. They were not just coming to congratulate him on his new found wealth and status but to seek help for their own financial woes; a child that was out of school because of lack of school fees, a sick mother, a home that was about to be auctioned because of a bank loan that had been taken to support a farming project that failed, and so much more.
In the meantime, he had bought a piece of land in a nearby town where he was putting up a 5-storey commercial building that mainly comprised of rental houses with businesses premises on the ground floor. He bought a motorcycle to facilitate his transportation.
Misfortune visited Jason’s family in the most unusual way. The commercial building he was putting up came crashing down when it was almost complete. The only work remaining at the time was the finishing. He was very fortunate because the collapse happened at night when no one was at work. There were therefore not injuries and no fatalities but he lost most of his money. It turned out that the person he had hired to supervise the construction work was not qualified. He had never supervised a project of that magnitude before.
The Curse of the Nouveau Riche
People who win the lottery or find themselves suddenly in possession of large sums of money rarely end up on the list of the world’s wealthiest people. This includes professional athletes who win large sums of money and more so if they are from poor backgrounds. People who inherit large sums of money are in this category too. 70% of them end up bankrupt within 5 years. Their final situation is normally worse than what it was before the win.
The number 1 factor that brings them down is their circles. Everyone around them is needy. Compare this with the circles of the world’s wealthiest people.
Our relationship with money was learned by experience from a very young age. Probably we were sent to the shop when we were little and we lost the change along the way. The reaction we got upon arriving home and being asked for the change taught us something that is likely to shape our relationship with money for the rest of our lives. So is the reaction we got whenever we asked for something that required spending money such as a school trip or purchase of a pair of sports shoes. Did we observe a culture of saving and investing from the time we were little? Our relationship with money has deep roots. We do not learn that in adulthood.
People who suddenly land on large sums of money are likely to not only have an unhealthy relationship with money but also to be inexperienced in handling such sums of it. The same applies to many people in their circles. Once family and friends get the news, they bring all their problems to their kin who is now rich. They now have their kin who is in a position to solve all their problems. Being surrounded by poor and needy people means that a lottery winner feels like some very important person in his circles. He compares himself with people in his circles and of course he is so much better than all of them. At that time, one is no longer in the league of the struggling people but is now rich. He can afford to solve problems in his circles.
Some great Jim Rohn quotes about the curse of the nouveau riche.
“If someone gives you a million dollars, you’d better become a millionaire so you can keep the money. Success doesn’t want to hang around incompetent people.”
“If someone hands you a million dollars, best you become a millionaire, or you won’t get to keep the money.”
“Pity the man who inherits a million and isn’t a millionaire. Here’s what would be pitiful, if your income grew and you didn’t.”
Poverty is a mindset and if one does not work on changing that mindset, it is impossible to get out of poverty no matter how much money passes through his hands. A person with a poverty mindset thinks in terms of spending, not growing the money. The lottery winner now has access to a lot of money yet has not been set free from the poverty mindset.
Lottery winners therefore end up giving away a lot of that money to needy people all around them and within a few years, they are back to being one of them. Giving away money without planning long term is the number one reason people who used to be poor then got lucky by becoming the proud owners of a lot of money end up back in poverty within a few short years.
Giving is not bad. In fact it is noble. Let us look at the way wealthy people give. Do they just give out money to whoever wants without a plan? Do they give out cash while all they have is cash or do they focus on accumulating assets then give back from their assets, not from cash? Cash runs out; assets earn money over and over again.
Personal Financial Management
There is something that building a business, failing, getting up again and continuing with the journey does to someone’s development. There are so many lessons one learns along that journey. One learns many useful lessons through experience. That is what is called growth. You learn how costly mistakes can be. You also learn that in this world not everyone is happy for you when you succeed and that there are selfish people around. Your journey teaches you how to count the cents. The pain of struggling to afford every small thing in the course of building your business teaches you how important every coin is. You learn how to plan and budget long term, not to spend on impulse.
By the time someone is bringing his problems to you, you already have the long term picture of what you need to build and you are not even sure that the money at your disposal will be actually adequate for all that needs to be done. You are focused on making your money meet the needs before you.
Winning the lottery cuts out the growth process. It is like taking a toddler straight to college without passing through the different classes. The lottery winner is like an untrained child, has no experience handling serious money. Imagine buying a luxury car for your teenage son; is he competent to value it, take care of it?
The Important Role Professionals Play
Every successful person knows how important it is to engage the services of professionals such as financial advisers, life coaches, mentors, accountants and advocates. A person with a poverty mindset avoids ‘wasting’ money by hiring professionals. So he gets into the driver’s seat and starts driving while he has never driven before. It does not take long before he crashes!
A person who has not grown into money gradually is likely to behave like a starving person who has suddenly landed in a room full of delicacies. He wants to savor everything and is in a hurry to do so. He will quickly upgrade his house, furniture, car, family’s lifestyle and much more, without carefully planning and budgeting long term. What he has forgotten is that the money was a one-off payment, not a river that will continue flowing for as long as he lives. What he has is cash; not income generating assets.
A person who has learned about money will never eat the seed; he will plant that seed and nurture it so that it produces more seeds in future. A person who lacks financial literacy eats the seed and plants nothing. Once the seed has been eaten there is nothing more to go back to. He finds himself in a worse off situation than the one he was in before he won the lottery. He is stuck in a lifestyle that he cannot afford, unable to go back to his previous lifestyle. He is like a drowning man who is trying to clutch at a straw but the currents are just too strong.
Investing in a Business Without Careful Research
People who have suddenly landed on a lot of money might attempt to invest. That is admirable. The reality of the matter is that succeeding in a business takes skill and experience, which in most cases they do not have. The large sums of money gives them fake confidence and they fail to do proper research about a business before investing in it.
They do not follow the critical rules of startups such as keeping expenses down, doing sufficient research before embarking on a particular line of business and not engaging in a business one knows nothing about. It is possible to venture into a new line of business and succeed if one has the right support systems such as competent mentors or business partners.
They are likely not to put in enough effort to make it work. The false assurance given by the large sum of money makes them not desperate to do what it takes to make the business work. They fail to do risk assessment and end up putting their money in ventures they are not competent to handle.
Successful investors usually have lots of money. However, suddenly having access to a large sum of money does not automatically make one a competent investor. The best bet a lottery winner has for transforming his life long term is changing his circles and surrounding himself with the right people, people who are experienced in handling large sums of money. He will need people to help him remain level headed with the changing fortunes. Engage in conversations with such people every day and just be part of their circles. Consult with professionals about every major decision.
No matter how large a sum of money is, spending it without a budget and without carefully planting for the future is a sure way to finish it really fast. Riches have wings; money does fly away unless it is is carefully taken care of.
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