Why do some of the richest people go broke?

The herd mentality could be one reason. When you’re with a certain social group, you tend to keep up with the lifestyle and expectations and social norms of the group. If everyone’s spending $50 on lunch every other weekday, it would seem entirely normal and perfectly alright to do the same for yourself, since everyone’s doing it. If everyone owns a classic Chanel caviar leather flap bag, then it would too seem normal to purchase and own one (or a couple) of your own. If everyone’s blowing their cash and breaking the bank (and credit cards!) on the latest cars, or an entire collection of Macallan M’s, then it’s easy for you to imagine the same for yourself.

Whether that bag, that watch, that car, that lifestyle translates to a status of wealth, a feel-good factor, or is simply accepted as part of the norm within your social circle, it can be refreshing to take a couple of steps back and look at what truly matters to you.

Some of the richest people go broke because they partake all too readily in the herd mentality and readily welcome the kind of lifestyle their social circle indulge in, without seriously considering the risks and impact on themselves when things do go awry. When reality finally hits, it hits hard and fast. It will be nearly impossible to build the same sort of finances and income when you’ve reached that breaking point. Time to pick yourself back up again, hopefully?

How Does One Mitigate Such Risks?

NFL Player Justin Tuck* sets a great example of someone who’s had a great (and cash rich) career in his 11-year stint as one of the top NFL players, yet has made some seriously smart decisions to help him avoid the financial death trap of most NFL players raking in the same kind of income he’s enjoyed.

The typical career lifespan of a NFL player is anywhere between 1 to 10 years. Justin Tuck stretched his over 11 years, but conscientiously chose to mitigate the risks and impact that the end of his NFL career would bring about by investing in education (in one of the most prestigious schools for finance, I might add). He knew there was an end to his lucrative and awe-inspiring career as a NFL player, and he made the intelligent decision of investing in himself in a different industry, crafting out another source of income and career path for himself for those days when he will no longer be a part of the NFL.

When you’re caught up with living, you know, the whole “I am adulting, working, earning an income, trying to make sense of my life as a new parent, blah blah blah” shenanigans, don’t forget you’re still playing the game of life. You still need your long term strategy, and you will still have risks you need to plan ahead for to mitigate, and hopefully avoid without too much damage to your financial, emotional, and physical health.

Think about your life as a game, you know, one of those city-building roleplaying games where one city goes to war with another to expand territories and such. You know better than I do that in order to expand your territory successfully, you’ll not only need to protect what you currently have, you’ll also have to plan resources to both attain new land and protect that new plot of land. You’ll then have to allocate resources and time and effort to grow the new plot of land, all while spending resources in building a thriving community on the lands you currently own, protecting what you already have, and strategising on the next land acquisition.

Your lands are what you own – tangible and intangible assets.

Financial plans are a means of protecting and acquiring new plots of land.

Good financial consultants are there to help guide you on strategy, on products, and helping you acquire things you need to both safeguard and increase what you own.


*NFL Article – Justin Tuck

Posted by:Cherie

Financial Planner and Tech Consultant

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