Fear

Kia Ora,
To carry on where I left off on last blog I will look further at why people with a lotto win or windfall are likely to be the same or worse off within 5 years or sooner.

So why would someone loose all that windfall.

First is the fear factor. Windfalls of a large amount of money can cause people to tremble with fear. They no longer feel safe or secure.

Then the actions most carryout doom them to loose it all. They will buy liabilities in a new house, new cars, trips  & any toy going.

Where as someone with a rich mindset would buy assets which then buy those same toys & liabilities for them.

Those statements will be hard for many to understand, but lets look at an example.

You win lotto & buy a new $1 million dollar house free hold. Suddenly your rates are very high, as are your insurance payments & anything else that might go with that.

But the house is not making you any cash flow (except in theory it may of made a capital gain which you don't realize until it actually sells) & this alone with those costs now so high can be enough for the house to be lost.

Where someone with a rich mindset might buy the same house but take out a loan to do it & use the remainder to buy cash flow positive assets. Those assets mean someone else is paying off your mortgage, your rates etc. All those assets are also likely to being bought using good debt.

The other thing that people will do is buy what they think the rich is as in shares. Thing is they have probably being listening when they had no money to what was a good buy & now having the cash they do what most people do.

They have held on until the market is real hot then they buy at the top. The market crashes & they sell at the bottom. The rich do it the opposite way. When everyone is getting in they get out, when everyone is getting out they get in.

But in the mean time our winners have lost more money & come to the conclusion that investing is risky. What is risky is their lack of knowledge!

Technically with that amount of money they are in the rich part of the world, but without the knowledge they are still poor with money for the taking.

The worst thing you can do when you have a winfall is to be asking "what should I do?" There are plenty of people who know what to do with your money.

One person said to me that if they win lotto their plan is to do a couple of things then give the rest to me for my business because I have done the study & have the plan.

That is my plan & it doesn't mean it will always work. As Robert Kiyosaki says they say that 9 out of 10 businesses fail so you just have to start 10 businesses. In fact he succeeded on number three due to his education & learning from his mistakes & they mistakes of others.

By all means invest in a mates business plan, but make sure you understand what is going on & get it all written up in legal terms. Become your own expert.

The comment came as we were talking about another mate who had lent to his best friend & had nothing on paper. Learnt that one myself the hard way. With friends & family you need to protect yourself more legally than most or it will cause rifts.