I Used To Be Rich: 3 Reasons I Lost My Money and What You Can Learn From It
Jay Zigmont, CFP and founder of Childfree Trust, made his first million dollars by age 21.
"In the late '90s, I posted my resume on this new thing, Monster.com," said Zigmont, who ran an internet service provider (ISP) in the early days of the internet. "I ended up working for a couple of dot-com startups, and finally hit an initial public offering (IPO) with one," resulting in his first big payday.
Having grown up broke, Zigmont thought all his troubles were behind him. Four years later, his fortune was gone.
Unfortunately, Zigmont's journey is not unique. CNBC reported that 70% of people who suddenly come into money go broke within a few years. Why is that?
Here are three reasons Zigmont lost his money -- and some lessons you can learn to avoid his mistakes.
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Lavish Spending
Zigmont was not conservative with his spending. After his first big paycheck, he bought a Hummer with cash.
"Not one of those new ones you see now -- one of those old-school Arnold Schwarzeneggar Hummers" -- a celebrity must-have in the 1990s. The vehicle was utterly impractical for everyday use. He also bought a large house and other flashy yet unnecessary gadgets.
Instead of saving his money, Zigmont succumbed to lifestyle creep. In other words, as his pay increased, so did his spending. Unsurprisingly, the money ran out.
Over-Giving
"When you grow up broke, you know your family and friends need help, too," said Zigmont, who took his mother on a once-in-a-lifetime trip, bought his father his dream car and paid off loans for his loved ones.
While well-intentioned, spending is spending -- even when it's on other people. It's noble for successful individuals to give back. Just don't traffic in extremes and expect the money to last forever. It's perfectly OK to tell people no. Over-giving can leave one with nothing for themselves.
Not Knowing How To Manage Money
At the heart of the matter, Zigmont didn't understand finances or the value of money; he stuck his head in the sand without a plan to guide him forward.
"I didn't really keep track of spending or giving, I just did what 'felt right.' There wasn't a plan or an excel sheet tracking it."
Once he made his money, he didn't know how to keep or grow it. Financial literacy was completely absent. Instead of investing or saving his money, Zigmont went into debt buying things for himself and others that he ultimately couldn't afford.
Zigmont said it took him a decade and a whole lot of listening to Dave Ramsey before he learned how to eliminate his debt and grow his money in the right direction. Today, Zigmont works as a financial planner, counseling others (from experience) on what not to do.
Takeaway
Just because you have money today doesn't guarantee you'll have it tomorrow. In fact, making a lot of money without knowing how to manage it can be worse than not making much money at all. Overspending and over-giving lead to years of debt and costly interest payments. So think long term. Educating yourself about finances or working with a financial planner (or both) are crucial.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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