About 70 percent of people who win large amounts in the lottery have nothing to show for it after seven years. The same can be said of people who received other windfalls such as inheritances or financial gifts.
How to use your windfall to live the life you dream of
If you’re lucky enough to have received such a windfall (or you if you haven’t but you play the lotto and you’re hopeful you will); how can you make the most of it? How do you ensure you use it to live the life you’ve always dreamed of?
“You’ve got to think like a wealthy person,” says Certified Financial Planner Paul Roelofse. “Wealthy people don’t pass the time thinking how they should spend. They look at how they should guard their capital and grow it, not only for themselves but for generations to come.”
So, how can we guard and grow a windfall that comes our way?
“I would suggest, before you do anything, take a few days off and go away to think about what just happened,” suggests Roelofse. “Think hard about what you’ve got. Let it really sink in.”
Then, when you’ve taken a deep breath and gathered your thoughts, get professional help. “This is what wealthy people do,” says Roelofse. “They have financial planners and advisors.”
How to find a good, honest financial advisor
Start your search for honest advice at the Financial Planning Institute (FPI). The FPI’s website has a function whereby you can search for and browse the CVs of accredited advisors in your area.
So if you are fortunate enough to get a bonus this year, think careully about how you can make it grow. Holidays are good, but what is better is a holiday that pays for itself!
All these advisors are “Certified Financial Planners” – the gold standard when it comes to certification of financial advisors. “This is an international qualification,” assures Roelofse. “In addition, if anything goes wrong, you’ve got recourse with the institution as well as with the Financial Services Board (FSB).”
While a six-figure inheritance or high-paying job can land you in the top 1 percent of earners, it’s the little things—your money habits—that often make the difference between a life of prosperity and one of constant financial stress. It is not how much you earn that will make you wealthy, it is what you do with what you earn that will make you wealthy. We hear of many rags to riches stories of people who started of with nothing, but through sheer determination, they have grown their incomes and have made it into the top earners category.
It has been said that first generation wealth doesn’t often make it into the next generation, possibly because of the relationship first generation rich people have with money. The interesting thing about money is that as it grows, so does the appetite to spend it. AS money increases, tastes become more refined and a preference for the finer things in life seems to take over.
Most people fall into the trap of “Putting your good money habits off till later,when life will get easier.” The thing is, somehow the minute your income increases, the demands on your money seem to as well. If you cannot manage the little you have, like the tale of the talents in the bible, you will never be able to manage plenty. In fact they do say that if you give a foolish man a million dollars the million dollars will shrink to his level.
No. 1: Reverse your thinking
We know: After taxes are taken out and the bills are paid, your paycheck can seem a little anemic—which can make the idea of having to save for retirement too seem like a real stretch. But to build wealth, a change in mindset is required. Namely, instead of spending the rest of your take-home pay, you’d actually take another cut of your paycheck and put it toward your biggest financial goals.
Most people spend some money, pay their bills and save what’s left. You should be saving for your financial goals first, paying your bills and and then consider spending the money you have leftover. Every little helps, start with $5, $50, whatever you can stretch yourself to save, then increase from there.
No. 2: Look where you want to go
Just as performance athletes imagine themselves making the shot over and over again—check out this study for how goal setting improves motivation in athletes—knowing what you want your money to do for you gives your goals a better chance of being reached.
To get going on saving for the future, financial experts often suggest having a five-year plan, where you create specific money goals you’d like to achieve in five years and what you need to achieve those goals. (That is the goal of LearnVest’s 5-Year Planner.) For example, saving six months of income for an emergency fund, or saving for a big event, like a down payment on a house.
No. 3: Adopt your own private mind tricks
Create financial rules for yourself that will restrict you from overspending. What if you reduced your clothing or hair budget by half? Do you really need to buy new clothes every month. Do you really need to buy your clothes from Truworths? You could close your account at Truworths, and buy good quality clothing for cash and save yourself a monthly payment for clothes.
Also known as “heuristics,” these rule-of-thumb strategies we create for ourselves—such as not spending more than $15 on an item of baby clothing, or more than $50 on a pair of shoes—can help simplify the many choices we make in a day. Behavioral economists believe that adopting good heuristics can help one develop good money habits (see this piece for more on how and why they work).
No. 4: Live like a ‘secret’ rich person
For some, the image of a millionaire conjures visions of sprawling mansions and shiny Bentleys. But most millionaires don’t live large like that—rather, they tend to live well below their “means” and do more saving than spending. In other words, they’re not flashing their money, according to Dr. Thomas J. Stanley, co-author of “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy.” Stanley’s book, which details more than two decades worth of surveys and personal interviews with millionaires, reveals that much of the wealth in America is more often the result of hard work, diligent savings, and living below your means.
Las Vegas–based David Sapper, who owns a successful used car business, and his real-estate broker wife make a combined income of $500,000 per year. Yet they live like “secret” rich people, only spending $2,500 per month on all bills and extracurricular expenses like eating out, unlike many of their peers. By putting 90 percent of his income into savings and investments, Sapper says he’ll be able to retire early.
No. 5: Tackle retirement now
If you’re in your twenties or thirties, retirement can seem eons away—and saving for it might not seem like a priority. Gone are the days when children were an insurance policy. In Africa parents with the most children had the best policy. That is no longer the case as children are staying longer at home, some never leaving, let alone taking care of parents. With pension schemes being almost non existent it is a good idea to start investing into a retirement fund. It is impossible to survive on the meager dollars from NSSA if you are entitled to them. Rather plan ahead and avoid the challenges of retiring broke.
The later you start saving, the more you’ll have to save. But the sooner you sock money away, the more time it has to compound and grow.
If, for example, you’re 30 and putting $50 a month into a retirement account with a 7 percent rate of return, that $50 a month would turn into $56,000 in 30 years, says Blaylock. Should you wait to age 40, you would need to contribute $110 per month to get to that same goal. This is because your money has less time to grow which minimizes the impact of compound interest.(For more on compound interest and why losing time on retirement can hurt you, check out “The Secret of Retirement Savings: You Can’t Make up for Lost Time.”)
No. 6: Know what’s coming in, and what’s going out
Most of us have good intentions when it comes to saving money. But if you don’t know what’s coming into your bank account and what’s going out, chances are you don’t know how much you can devote to your goals. And most people generally don’t track their income and spending, says Blaylock. “It really is shocking to me that clients I work with don’t always review their pay stub,” he says.
You can track your expenses for free with apps like . Remember: Knowledge is the first step to lasting change.
No. 7: Getting out of debt
Everyone has debt at some point in their life. But if you have bad debt—not student loans and mortgages, but credit card debt and loan sharks, where you’re paying high monthly interest rates—nixing it and getting out of the habit of being a debtor—should be priority number one.
No. 8: Increasing your earnings
There are two ways to increase your net worth: Spend less or save more money. “And spending less is only part of it – you have to save, and when appropriate invest, the rest. “Earning more often doesn’t lead to higher net worth because lifestyle expenses grow along with it.”
But if you grow your income, and set some of those earnings aside, you can grow your bottom line. Aside from getting a raise or winning the lottery, there are a few ways to get more money flowing in.
One suggestion: Diversify your income streams by selling something. In Zimbabwe everyone sells something, find something to sell. That extra $20 you make can help you get out of debt or start a savings account. As far as earning more, there are a few things one can do.
Another idea: Look for investment opportunities—perhaps with the help of a financial planner—or other ways to get income to come to you. Retirement income should come from multiple sources such as rental income, part-time income and retirement assets.
No. 9: Consider consulting an expert
There are times in life when consulting an expert pays you back in spades. Even if you’re doing everything you can to start good money habits, using a qualified financial planner can help keep you on track—and help you see the big picture.
Often times most of us are too emotionally involved in our finances to make really good decisions so what you’re looking for when you’re getting a professional is accountability and an outside view of what you’re doing.
No.10: Start Early
The best way to start a habit, is to start early. Teach your children how to save from an early age. When children can manage their money, and control their spending habits from an early age, they learn lessons that will be valuable all through life.
Most families will not be able to save anything. They are just trying to keep their heads above water. If you are in a position to save a little, do so while you can. If you are in a position to invest do so, while you can. No need to compete with the Jones, when retirement comes, all you will have are memories of good times, and those do not put food on the table.