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Money Matters


By Mary Lynne Dahl, CFP®


October 09, 2014
Thursday AM

jpg Money Matters by Mary Lynn Dahl

Mary Lynn Dahl

(SitNews) Ketchikan, Alaska - What if you won $5 million in a lottery, after taxes, in a lump sum? Could you handle this much money all at once? Do you have visions of endless vacations, summer cottages on the ocean, new cars, quitting your job? Would you make good financial decisions regarding control of this much money?

Chances are that getting this much money would not be the godsend you envision. For a lot of “lucky” winners, it is just the opposite. It can destroy your marriage, alienate your friends and ruin your life. Why is this? Well, take the quiz below and you may discover some insights about yourself.


To take this quiz, read each statement below. Check only those that you agree with. Read them all first, then go back and re-read them, putting a check mark next to any question that you agree with. If you do not agree with a statement, leave it unchecked. When you have finished this, score your answers.


01. Quit your job
02. Pay off all of your debts
03. Travel
04. Invest all of it in the stock market
05. Invest 80% of it in the stock market
06. Invest 50% of it in the stock market
07. Give it all away
08. Give away 10% of it
09. Keep working until normal retirement
10. Spend all of it on the things you have always wanted and the lifestyle you seek
11. Buy a new home for yourself
12. Buy a new home for someone else
13. Start a business
14. Put it all in the bank for safekeeping
15. Invest it all in rental real estate
16. Invest some of it in rental real estate
17. Invest half in the market and save the other half in the bank
18. Save 5% in the bank, pay off all your debts and invest the rest in the market.
19. Save 15% in the bank, pay off all your debts, buy a new home, take a big vacation and invest the rest in the market
20. Save 25% in the bank, pay off all your debts, buy a new home and car, take a big vacation, quit your job and invest the rest in the market

Now score yourself.

If you agreed with the following statements, winning this much money at one time would ruin your life: 1,3,7,10,12,14,15,20

If you agreed with the following statements, winning this much money at one time would be a big challenge but you might be able to handle it with competent and ethical professional help: 2,4,6,5,13,16,17,19,

If you agreed with the following statements, winning this much money at one time would be a good thing for you; you are one of the lucky few who could handle becoming wealthy overnight! 5,8,9,11,18

So, now that you have taken the quiz, how did you score? Did you score badly but still believe that sudden wealth would be the solution to all of your financial problems? Think about that again.

Studies show that a very high percentage of lottery winners make very bad decisions after they win. They suddenly have a lot of pressure from every angle to buy, invest, give away, help, donate, manage and make decisions on issues they have no experience with, for people and causes they do not know, for reasons they do not understand and with consequence they cannot predict. They take risks that are unreasonable for goals that are unattainable even with large sums of money. They enter into business deals that fail miserably, buy homes that are overpriced and too expensive to maintain. They are plagued by people who want them to invest in half-baked business ideas or deals which turn out to be outright scams. They discover that they have long-lost relatives who are destitute and need support. The list is endless and the stress of it is exhausting.

Having $5 million sounds great, but getting it before you are ready to handle it is usually a disaster with dollars attached. Most people who have achieved that kind of wealth did not plan to become wealthy. It was not their original goal. They generally end up with wealth for only 2 reasons; they either inherit it or they accumulate it slowly by investing carefully and continuously, for many years. These people did not plan to become wealthy. It happened because of certain traits in their character that propel towards success. They are “accidental millionaires”.

There is a good chance that you know someone, or live close to someone, who is an accidental millionaire, even if you live in a modest home, in a middle class neighborhood and don’t have the foggiest idea who among your neighbors might be a millionaire. I am not talking about billionaires…..or the ultra-rich. I am referring to people who are very comfortable by most standards, with a few million in assets, ordinary people, living next door to you, who are not ultra-rich but have accumulated enough wealth to qualify as millionaires.

The typical millionaire got that way very slowly and may own a small business that he or she built up over time. The millionaire living next door to you does not generally advertise his or her wealth, because, in fact, he or she does not consider it remarkable in any way. It is usually represented by the value of a small business, ample cash reserves and invested dollars and one or two paid-for real estate rental properties, also paid for. The millionaire living next door often has not had a “real vacation” in years. He or she has been too busy working to take the time off that would be needed for this kind of luxury. In addition, these folks don’t like to pay resort prices with money that they could use for investment in the business that is the engine that created their wealth. They have priorities, and the number one priority is usually thrift.

There have been a lot of studies done, and a lot of books written, on the habits and strategies used to become wealthy. Unfortunately, most of what has been written is designed to make the author rich, not the reader, and some of what has been passed off as a strategy for getting rich is absolute rubbish. Some of the concepts offered go so far as to constitute a scam, a ploy to relieve you of the burden of what little wealth you already have.

When asked, reputable studies indicate that ordinary people who achieve a net worth of a million dollars or more do have some things in common. Overwhelmingly, they learned at an early age to save. The amounts that they saved are not as important as the creation of the habit of saving.

I know of a single mother who was going to school and working full time, plus raising her children. She earned a very small salary from her job. She was able to save $15 per paycheck in the beginning, but gradually increased that amount over time. She eventually bought a little house, saved again, bought another little house as a rental and repeated this every few years. Each house was purchased with her small savings and a tiny profit from the rents on the houses she was accumulating. She did not spend the rent money on anything but additional houses, so her lifestyle did not change, but her net worth certainly grew. What she did, without realizing she was doing it, was develop the habit of saving. Today she is a millionaire 3 times over.

Another example is a woman who received an inheritance of about $100,000 when she was 32. Although it would have been easy and tempting to just spend this windfall, she did not really need it and she already had a home, so her plan was to invest it for her retirement, which was 33 years in the future. Along with the $100,000, she inherited an annuity that paid her $600 per month, which she decided to add to the investment, so she set up an automatic monthly investment plan to do just that. Being serious about this plan, she never spent any of the earnings. In fact, she set them up to automatically be reinvested in the inheritance portfolio. In addition to this plan, she agreed to participate in her 401-k plan at work, with combined payroll contributions (her own plus her employer match) of about $6,000 per year on average. Today, 30 years later, her inheritance portfolio is worth over $1 million and her 401-k plan is worth slightly over a half a million dollars. She still lives in a modest house and enjoys a modest life style, but when she retires in about 3 years, she will have 2 ½ times more income than she did when we was working for a salary. Although she did inherit, her basic characteristic of thrift propelled her to save and invest for later instead of spend now. Becoming a millionaire was accidental.

Another characteristic of millionaires is that most are self-made. Few have inherited anything. Studies show that when a small business is passed down to subsequent generations, it often fails by the third time it is passed down. The reason is that by the time that the business passes via inheritance 3 times, the third owner is not really interested, has little or no incentive to work hard in the business and takes the business for granted. Bingo! The business declines, fails or is sold to someone who does want it.

Millionaires will often tell you that they were “hungry” for success in their profession or business, but not for money. They also report wanting to control their own time and their own destiny. These are driven people who are willing to sacrifice today for rewards that they will not enjoy until later. Without the drive to succeed, wanting to be in control of your time is useless day-dreaming. It takes the same kind of discipline to manage your time well as it does to save early and often, despite the sacrifices required.

Studies indicate that modestly wealthy people believe that it is not necessary to make a lot of money to become financially wealthy. Instead, these people recognize that wealth is created by owning assets that grow in value, produce enough income to meet goals and by not spending all the income that they earn by their efforts. As a result of this perspective, self-made millionaires tend to be very good savers and very disciplined investors, sticking to their plan. The plan generally seeks a measurable outcome based on a set of goals.

An example I can offer here is the man who had started a small niche restaurant. His idea was that it would be different than every other restaurant in his town, and therefore unique. He would operate it for 5 years then sell it for a profit. In each case, he estimated the price of starting up, operating for 5 years and then selling at a certain percentage of net profit. I watched him open the first restaurant. It was, indeed, unique and an instant success. He then repeated this 3 times in locations where I was able to see the results, which were as envisioned each time. That was 30 years ago. Today he is a millionaire about 4 times over, and owns a small ranch where he raises dogs and horses. His goal was the lifestyle he enjoys today, not to become wealthy. The wealth is incidental.

Most wealthy people who are self-made are not only fairly modest and down-to-earth, they are also risk-takers. However, they carefully weigh the risks before taking action. Many are simply intuitive about risk, have an inherent understanding of the absolute necessity of it and develop a plan to minimize the risks before they get started on their grand adventure. Owning a small business does require risk-taking. What if the service or product that you produce doesn’t sell? What if you can sell it but can’t make a profit? What if you can’t produce it because you can’t hire qualified employees? What if regulations make it so expensive to produce that you end up losing money? These risks, and more, plague small business owners worldwide, but the undaunted risk-takers simply press on, and many succeed. It is estimated that over 80% of business in the US can be classified as “small business”, so apparently there are quite a few people out there who are willing to be frugal, make sacrifices, take the risks, work hard, save regularly, invest wisely and wait years for the rewards, with no guarantees. You won’t get wealthy by asking for a guarantee.

So, if you day-dream about laying on the beach all day, sipping a margarita topped with a little umbrella and have visions of that being how it is to be a millionaire, forget it. The reality is that in order to reach millionaire status, you will either be a thrifty and routine investor or you will work 70-80 hours a week in your own business in the early years, rarely take a fancy vacation, drive an older car or truck, live in a modest home most of your life and retire with no debt and enough income to do anything you want, any time you want. The self-made millionaire living next door is not a dreamer. He or she is a determined, driven risk-taker with the habits of thrift, hard work and investment in their own goals. This is not the profile of a lottery winner.

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©2013 Mary Lynne Dahl, CFP® is a Certified Financial Planner ™ and partner in Otter Creek Partners, a fee-only registered investment advisor firm in Ketchikan, Alaska. These articles are generic in nature, are accepted general guidelines for investment or financial planning and are for educational purposes only.

Mary Lynne Dahl©2014

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