Have you ever wished you were rich? Have you ever believed that your money problems would disappear if you had more money? Have you ever told yourself that you’d be able to shake your debt, shake your bad habits, if only you won the lottery, inherited money from Aunt Madge, sold a screenplay? It ain’t necessarily so. Even the rich have trouble with money.
Several GRS readers (including Vincent and Jeff V.) sent me a recent New York Times article entitled Fortune’s Fools: Why the Rich Go Broke by Timothy L. O’Brien. [free registration required]
O’Brien’s piece looks at the psychological pressures that come with wealth. He interviews financial experts and wealthy people — such as boxer George Foreman. — in an attempt to discover why the rich are no better at managing their money than average folks.
Unlike many of his counterparts in the entertainment industry, George Foreman has made a lifelong habit of shepherding his money. Sometimes he’s made poor investment decisions, which have led him near to bankruptcy, but he’s educated himself about good money habits (he reads personal finance books), and he tries to make smart choices. He says that he respects every dollar.
Mr. Foreman, who stared down financial collapse as an adult despite a troubled, impoverished childhood, said he knew real wealth when he saw it. “If you’re confident, you’re wealthy,” he says. “I’ve seen guys who work on a ship channel and they get to a certain point and they’re confident. You can look in their faces, they’re longshoremen, and they have this confidence about them.”
He says he can spot a longshoreman who has enough equity in his home and enough money in the bank to feel secure, and that some people, no matter how much money they have, never get there. “I’ve seen a lot of guys with millions and they don’t have any confidence,” he says. “So they’re not wealthy.”
According to David W. Latko, a money manager and author of Everybody Wants Your Money, there are five basic ways to become rich:
- Inherit wealth
- Marry wealth
- Steal wealth
- Win wealth
- Earn wealth
“Only those who earn fortunes,” says Mr. Latko, “tend to preserve their wealth. Inhabitants of the other four categories are more prone to be wastrels.” Even these delineations aren’t clear-cut. Many who have struggled to earn wealth have gone on to lose their fortunes.
The article cites several celebrities who have struggled with fortune, including:
- Buffalo Bill
- Mark Twain
- Michael Jackson
- Mike Tyson
- Burt Reynolds
- Elton John
The trouble is many-faceted. When people get rich quickly, they don’t learn techniques for managing their wealth. If they don’t have good financial advisors, they’re liable to squander the money. This is especially a problem because people — rich and poor — love instant gratification. We want things now. It’s difficult to save, difficult to think about a hypothetical future, even when you have a lot of money. Wealth must be accompanied by psychological and emotional maturity.
“You have people who are struggling for a long time and then overnight, boom, they hit it,” says Shelley Finkel, Mike Tyson’s manager. “If they don’t have someone watching out for them, and some emotional stability, it will be very hard for them to be grounded financially.”
This is a fascinating article, well worth twenty minutes of your time.
[New York Times: Fortune's Fools: Why the Rich Go Broke]