Six Reasons Why Money Doesn't Make You Rich

Why many rich people go broke—and how you can avoid their fate

If you made $108 million dollars, would all your money problems be solved?

If you answered yes to this question, there’s a chance you don’t understand that having more money doesn’t solve your money problems. It just brings new ones.

Take for instance the story of Antoine Walker. In 1996, he was drafted by the Boston Celtics and had a storied career. As “USA Today” reports, “Over the next decade, he became an NBA Live cover athlete, a three-time All-Star, an NBA champion, and the recipient of over $108 million in contract money.”

And then, it was all gone.

In the space of a few years, Walker lived lavishly, buying dozens of cars, never wearing the same suit twice, propping up his family and friends financially, and eventually backing a real estate investment company with his personal guarantee. And that was what did him in.

Eventually, Walker had to file for Chapter 7 bankruptcy. He went from over $100 million dollars to nothing in the space of a few years.

Today, Walker has reinvented himself, teaching other young athletes about the pitfalls of sudden wealth. I wish him all the best, as it’s noble and important work.

At Rich Dad, we’ve talked about this topic as well, and I believe there are six reasons why “rich” people go broke. I’m sure Walker would read them and resonate with most of them.

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.”

This isn’t uncommon. A recent survey by the financial services firm UBS confirmed that only 28% of those who made $1 million to $5 million consider themselves to be wealthy. Why? “Half of those worth $1 million to $5 million believed that one bad break, such as a market crash or a job loss, would have a major impact on their lifestyle.”

As I wrote about this last year:

The survey by UBS brings to light a reality of many millionaires. They are not really financially free. Rather they are high-paid employees that have a large amount of liabilities, bad debt, and bad spending habits.

This confirms a simple truth: no amount of money can change bad financial habits. In fact, it often magnifies them. The rise and fall of lottery winners and pro athletes are good examples of this.

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.

You can see this in Walker’s story by his lavish spending on himself and his friends. Only euphoria results in never wearing the same suit twice and having more cars than you can count on one hand. It’s one thing to own nice things—especially when you have investments that cover those liabilities in cash flow—it’s another to outspend a high paycheck. Many high-paid employees still live paycheck to paycheck.

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.

This is something Walker experienced. As he told USA Today:

“That process of me playing in the NBA created a very expensive lifestyle for myself,” Walker told USA TODAY Sports in a phone interview last month. “I lived a very good lifestyle where I took care of not only myself, (but) my brothers and sisters. I was the oldest of six, so I watched my mom raise us by herself. I have two kids of my own…and I brought friends along on the journey as well. I ran with a group of friends, seven or eight of us that grew up in the same neighborhood. I kind of took them on this journey with me throughout the NBA and made sure that they enjoyed the fruits of my labor too.”

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.

This happened to Walker to. He told USA Today about his downfall came from making bad investment decisions:

“In the process of taking care of (friends and family) and myself and creating a lifestyle for myself, seven years into my career I decided I wanted to venture off into real estate,” Walker said. “…Eventually, four years down the line, it ended up going bad. Recession hit, 2007, 2008. …The downfall, the mistake that I made, was being the personal guarantor of the real estate company and putting up my personal financial portfolio in order to get these loans and this money.”

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.