Many of us imagine how life changing it would be to win the lottery. After all, a few million rand would leave anyone better off, wouldn’t it?
Unfortunately, the rather alarming answer to that question is actually “no”. Research from the National Endowment for Financial Education in the US has found that more than two thirds of lottery winners end up broke in a matter of just a few years.
There are many theories about the psychology behind this phenomenon. One potential explanation is that most people who win the lottery feel they suddenly have a bottomless pot of money and spend it with no concern. But even millions can run out.
A second idea is that, without help from professionals, most people have no real idea of how much they can sustainably pay themselves from a big sum of money. For example, how many people could say confidently whether an income of R200 000 per month would last from lottery winnings of R10 million?
(The answer is that it probably wouldn’t last much more than five years.)
A third, and particularly interesting theory, is that most lottery winners struggle to hang on to their money because of their “financial context”.
Our attitudes towards money and the stories we tell ourselves about it are inevitably shaped by our social and familial environment. As financial planner Dave Fisher notes in his book Destination Wealth, most people don’t even realise this.
“Where does our financial context come from? Our upbringing, our parents, our peers and their beliefs about money are our most influential context shapers,” Fisher writes. “Have you ever noticed that most people tend to emulate the financial results of their parents and peers? Regardless of their education, intelligence, effort and even income, they fail to achieve financial success beyond what they know.”
And, unfortunately, according to Fisher, most people have a small financial context. This means that they never feel that they have enough, and that this is due to things outside of their control, such as the tax they have to pay, their jobs, or how their partners spend.
“Strangely,” Fisher adds, “these people believe in money for nothing – that money will manifest out of thin air.”
In the case of lottery winners, this is actually what happens. And since this vindicates their belief, they spend their winnings with abandon, which then just takes them back to where they started.
Conversely, those who have a big financial context are people who “believe in abundance”. They have a long-term focus, are givers rather than takers, and can be satisfied when they have “enough”.
These are not just two binary “types” of people. They are the ends of a spectrum, and everyone has elements of both. However, those who have a healthy relationship with money and prioritise long-term planning are at the “bigger” end.
Where you sit on the spectrum is also not static. It is possible to change your financial context, and the first step to doing so is to have a vision.
The reason that winning the lottery is often not a long-term panacea is that most winners don’t have a clear vision of what they want to change about their finances. They think that simply having more money will solve their problems.
But, as Fisher writes:
“Simply wanting more money is not a compelling vision. Why is having more money important to you? What do you see yourself doing once you’re maintaining financial independence? Answer these questions and you’ll find your vision.”
It’s vital to do this without comparing yourself to anyone else or considering what other people might need. This is not about being selfish or narcissistic. It’s about understanding what is important to you, and what “enough” would be.
Fisher puts it like this:
“Financial success books often focus on earning more money. Most people believe that a big income is what makes you wealthy or prosperous and therefore constantly strive to make more money.
“Wanting to earn more money is not a bad thing. The problem is, if your financial planning strategy is simply to earn as much as you can and spend it, you’ll become the proverbial hamster on a wheel. While it does help to earn more, if the additional cashflow doesn’t result in savings, no wealth is created. The secret to wealth creation lies in consistently doing well with what you’ve got.”
To discuss your long-term investment strategy, speak to a professional.
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