How come Lotto winners lose their money so quickly?

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One of the national weeklies carried a story on a man from Durban who won R10 million and within five years he lost it all.

Research shows that up to 70% of lottery winners lose or spend all of their money in five years or less.

With high amounts of personal indebtedness and small businesses going into liquidation in huge numbers just what is it that causes people to crash into financial problems.? Some pay their debts off but end up in catastrophic financial trouble again.

What about the promising business idea that someone develops and everything looks good but within a year or so they hit serious financial problems?

One business and marketing expert recently put it down to peoples’ belief about wealth, how they have grown up in families that have certain perceptions about money and erroneous beliefs and behaviours about wealthy people and the accumulation of money. The bottom line: you need to change your beliefs and behaviour about money otherwise you will set yourself up to struggle financially no matter how much money you make through investment, start-ups or small businesses.

I’m not sure that this explanation fully covers how someone can go from winning R10 million and within five years ends up with nothing. How come? What’s going on here? Are there any lessons for start-ups and small business owners?

If you look at what this former policeman from Durban did with his money, how he spent it on properties and cars and the type of business investments he made, there is a clue to the deadly mistakes that any business person can make. He bought a chicken franchise and then a video store and after the video store failed he bought another. All of these businesses failed.

What people lose sight of when they have such vast amount of money is a false sense of suddenly being able to understand business domains where they have absolutely no experience or expertise. Warren Buffet calls this your “circle of competence”. He never ventures outside of his circle of competence. You need to have competence in the market and particular business to make it successful. If you don’t have any experience or expertise in a particular business domain, then you need to bride it by hiring people who do. But the problem here, as always, is hiring or paying for people you can trust.

The other issue is that when people acquire money so quickly they seem to lose sight of its worth or value. Those who have earned money the hard way and usually slowly know the value of every one of their rands. In fact, many successful business owners practice these simple 30 second rule for every Rand that they turn over. An example: before you spend one Rand you give yourself 30 seconds to decide whether or not you should spend it. This gives you that momentary opportunity to decide whether it should slip through your fingers or not.

Such huge losses from lottery winners hold many lessons for small business owners. Apart from the need to manage and invest money prudently, frugality pays. One survey of millionaires (“The Millionaire Next Door”) discovered that the brand millionaires prefer most is”free”. Many drove cheap pickup trucks, lived in the same house that always lived in and were still married to the same person. It pays to know your strengths and limitations when it comes to making and accumulating money.

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