Six Reasons Why Rich People Go Broke

Why being rich doesn’t mean being financially intelligent

Ever hear someone say, “Once I have a lot of money, all my money problems will be over"?

People with this attitude don’t understand that having more money doesn’t solve your money problems. It just brings new problems. That is why you’ll often see athletes who come from a poor background have money problems even though they make millions of dollars a year. It’s also why many lottery winners go broke. They don’t know what to do with the money once they have it.

The following are six reasons why rich people still go broke:

1. People who grow up without money have no idea how to handle it

Too much money is often as big a problem as not enough money. If a person is not trained to handle large sums of money or does not have a proper financial education or advisors, they will either stash the money away in the bank or just lose it. As my rich dad said, “Money does not make you rich. Financial education does.”

2. When people come into money, the emotional euphoria is like a drug that boosts your spirits

Rich dad said, “When the ‘money high’ hits, people feel more intelligent, when in fact they are becoming more stupid. They think they own the world and immediately go out and start spending money like King Tut with tombs of gold.”

As the old adage goes, “Money burns holes in pockets”…and in fortunes.

3. The hardest thing for many people is to say no to people they love when they ask to borrow money

I have seen many families and friendships break up when one person suddenly becomes rich. As rich dad said, “A very important skill in becoming rich is to develop the ability to say no to yourself and to the people you love.” The people who become rich and start buying big homes and boats are not able to say no to themselves let alone to their loved ones. They end up further in debt, just because they suddenly have a lot of money.

4. The person with money suddenly becomes an “investor,” but without financial education and experience

When people have money, they automatically think they are financially savvy, even if they never had money before and just got lucky. When you get rich, you suddenly have people banging down your door to get you involved in their “sure-fire” investments. But just because you qualify for big investments doesn’t mean you know anything about investing. A lot of financially-ignorant rich people lose their shorts—and fortunes—to bad investments.

Money does not make you rich. Financial education does.

5. The fear of losing increases

Many times a person with a poor person’s outlook on money has lived a life being terrified of being poor. So when the sudden wealth hits, the fear of being poor does not diminish. In fact, it increases. As my friend who is a psychologist says, “You get your fear.” If you act as if you’re always in danger of losing your money, chances are you will.

6. The person does not know the difference between good and bad expenses

Rich dad said, “The main reason I create assets is that I can increase my good expenses; the average person has mainly bad expenses.” This difference in good expenses and bad expenses was one of rich dad’s most important reasons for creating assets. He did so because the assets he created could buy other assets. Most people spend their riches on liabilities—things that take money out of their pocket—but the wise rich person spends money on assets that produce the ability to buy other assets (and some fun things too).

If you want to grow rich and stay rich, the number one thing you need is financial intelligence. That is your most important asset. Invest in that and everything else will fall into place.

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