Lara and Roger Griffith bought a lottery ticket and won $3.6 million. Roger worked as an information technology manager, and Lara was a performing arts teacher at a local college. While both were well-educated, neither of them had any idea how to manage such a large sum of money.
In an interview published in the Daily Mail, Lara said, “We were so desperate not to mess it up, and it’s very difficult when you have advisers coming to you in their shiny suits and flashy cars saying, ‘I’ll look after you, trust me.’ Who do you trust?”
She then added, “We were told not to put all our eggs in one basket, so we decided to invest in property and business. We thought we were doing everything right.” They invested in two rental properties, the stock market, and a beauty salon.
However, after Roger quit his job, they bought their dream home for about $1.6 million, along with a brand-new convertible Porsche and a Lexus SUV. They enrolled their two daughters in private school at a combined cost of $40,000 per year. They also started going on shopping sprees for jewelry and designer clothes, and they embarked on lavish first-class vacations to Dubai, Monaco, and Rome.
The Results of Poor Planning
As the economy was just starting to recover from the global financial crisis, their beauty salon was still hemorrhaging money. Then, their dream home was devastated by a fire. Because they were underinsured, they had to pay for temporary accommodations for the seven months it took to repair it.
Their unfortunate investment decisions, overspending, and failure to manage risk resulted in them losing every penny of the $3.6 million within six years.
In many of the “riches to rags” lottery stories we hear, we often assume that the people who lose their lottery winnings are unsophisticated or uneducated. However, this story illustrates how anyone is vulnerable to those losses.
Lara and Roger are intelligent, educated, and were (at least initially) sincerely committed to making the money last. They should have been set for life. How could a couple with all of those advantages fail so spectacularly after receiving such a windfall?
The Obstacles to Financial Success
This leads us to the larger question: if we all say we want financial success, why do so few of us ever actually achieve it?
Unfortunately, this disconnect exists for numerous reasons, including consumer culture, the media, and social media, all of which compel us to spend more than we earn with the intention of “Keeping up with the Joneses.”
It’s also challenging to overcome instant gratification and lifestyle creep in an era when pensions are going away and we are increasingly responsible for our own retirement savings. These factors, combined with the fact that we don’t have clear financial goals, can sabotage our financial success.
Once aware of the above challenges, the next step for those who want to achieve financial success is to focus on ways to overcome them. Working with hundreds of wealthy families, most of whom are self-made, I believe the answer comes down to knowing your values and applying effective principles to live your life in accordance with those values.
Values and Principles
You may value a $1 million investment portfolio and a house full of luxury goods, viewing all those things as the ultimate symbol of financial success. Or you may value living well below your means if it allows you to spend more time with your loved ones. The key is to understand what’s important to you and not chase after the things that the media, social media, and advertisers have tried to make you think are important.
For additional insights, we can turn to billionaire investor Ray Dalio, who founded Bridgewater Associates and built it into the world’s largest hedge fund. As he explains in his book Principles:
“Your values are what you consider important, literally what you ‘value.’ Principles are what allow you to live a life consistent with those values. Principles connect your values to your actions; they are beacons that guide your actions, and help you successfully deal with the laws of reality. It is to your principles that you turn when you face hard choices.”
In short, principles are rules or codes of conduct that can help guide our actions in times of uncertainty. The seven principles to achieve financial success that I developed in my book Spiraling Up are:
Principle One: Focus On What You Can Control
Principle Two: Accept That Wealth Is a State of Mind
Principle Three: Cultivate a Growth Mindset
Principle Four: Understand Your Personal Financial Statement
Principle Five: Use Debt Wisely, and Pay It Off
Principle Six: Develop Good Financial Habits
Principle Seven: Manage Risk
The first three principles deal with our inner worlds or mindsets, and the last four deal with financial practices and strategies. Some of these principles have been around for millennia, and others are relatively new. In any case, I’ve seen firsthand that following each one in combination with the others is what leads to more desirable financial outcomes.
Spiraling Up to Financial Success
I have also seen that using these principles has a compounding effect. When we make good financial decisions, big or small, it leads to improved circumstances. Those improved circumstances lead to better opportunities, and those better opportunities open the door to even more beneficial financial decisions. This results in the virtuous cycle I call spiraling up.
We can learn from the cautionary tale of the Griffiths’ lottery winnings and thrive in the face of the obstacles standing in the way of our financial success. By exploring our values, we can develop a better awareness of what we’re genuinely trying to achieve in our financial lives. Then we can apply the principles above to achieve our goals while living life consistent with those values.
Steve Medland is a co-founder of TABR Capital Management and is the bestselling author of Spiraling Up: Discover Financial Serenity, Make Work Optional, and Live Happily in Retirement.