How does a multi-millionaire become a bankrupt? Time's story about Allen Iverson is instructive. Allen was a NBA basketball star who earned an income of US$145 million over a 15 years playing career. That's a shitload of income. It's almost US$10 million a year. Yet, he appears to be completely broke now. Broke. Zero.
How did it happen? Simple. Not living within his means. It's a lifestyle of extravagance, indulgence to the extremes, and a complete lack of prudence in financial planning. Perhaps none at all? Almost.
Luckily for him, as broke as he is now, there is a silver lining. He has a lifetime endorsement contract with Reebok for which a $30 million trust fund has been established. While he will not be able to touch that till 2030, at least thereafter, his golden years will still be taken care of. Let's hope he doesn't blow that too! It's the money he doesn't have his hands on that is going to save him. Meanwhile, he will have to figure things out and live with regrets for another 15 years.
A colleague was sharing about the mental stress his wife-to-be and him were having. They are getting married soon. Their house has come, and the wedding is coming. All seems great. I thought he was going to tell me how happy they were. Problem is, the money's gone. They have run down their cash to zero. Any additional expenses and they would be like Allen Iverson.
My advice to him was that he had better learn to live within his means. He may have to forego some of his wants and trim expenses. As he would be receiving a pay increment soon, I suggested to him - set up another bank account and keep your itchy hands off it. Henceforth, for any additional increment he gets, automatically GIRO over the pay increment to the other account. And then use that account for investments for whatever longer term needs he would have, rather to spend on immediate wants. That would effectively force him to avoid inflating his lifestyle.
I hope he finds the courage and commitment to strike that balance.
For other stories:
Condo, Wife, Kids and a Taxi
Cashflow: A Tale of Stable Income