How rich people lose their money

By Francisco J. Colayco, Ph.D

There are so many people who work so hard to earn so much money. Then, after earning so much, they suddenly feel so rich that they practically throw away the money they worked so hard for.

What do they do? They become “show offs” and indulge in unnecessary luxuries that will not bring in any income. For example, brand new expensive cars, purchase of big houses, expensive parties for friends etc

They readily engage in businesses just because they have the capital to get started. They flaunt their instant wealth and so they actually become the target of their “friends” in proposing so-called business opportunities. They do not bother to study the long-term viability of these proposed project and they end up committing hard-earned capital without having a clear understanding of the business model that will show how they can make or lose money in the business. They do not analyze the risks. They rely on their friends' words. Why did they not work as hard to keep the money that they worked so hard to earn?

The cause for this irrational behavior is easily traceable to what I call a “lifestyle mindset.” It is a mindset that is focused in what one's present earnings can do in achieving his desired lifestyle at the soonest possible time. This mindset ignores the serious trade-offs between using present and expected future resources to secure the desired level of lifestyle now. The level of attendant risks in this kind of money management far exceeds the real risk-taking capability of this misguided kind of an entrepreneur. This kind of mindset is unable to distinguish between a transaction and a business. Far more resources are employed and put at risk for short term gains that, worse, are not even sustainable.

Another cause for poor personal money management is the inability of some to distinguish between their personal finances and those that pertain to their profession of business. They are unable to distinguish their persona from their income earning activity.

There are so many who know the proper practice of finance but apply it only to a job or project. For example, those who are employed by companies in their accounting and treasury function actually perform will in their assigned financial responsibilities. Yet, for a great number of these “professionals”, their own personal finances are neglected. Their financial decision making processes are often based on emotional relations and sometime just on friendly tips. They actually make personal financial decisions using processes they would never employ in their own money-related jobs.

In fact, it can be said that in many instances, families make their money decisions more along “gambling” considerations rather than on well-thought out studies and analysis. One outstanding factor in this regard, is that very few consult with experts before they make their money decisions. And this is one major factor that has brought about investment failures.

Another group that suddenly comes into a lot of money are the OFWs. They make a lot of sacrifices to earn their income. And yet, are not able to save. But that's another story that not only involves them but also involve their families and friends as well.

As you can see, the answer to not being able to keep the money they earn is that they do not know how. For most, it starts with the earning of the money. There is a big driving force to earn money but very few have a clear and specific idea of how much he or she wants to earn and, FOR WHAT SPECIFIC PURPOSE. They simply want to earn and earn more!

Then, they spend their money, as if the money were coming from a bottomless well that would never run dry. I hope that my books and articles continue to enlighten those who are still in this “earn and spend until you drop” frame of mind.