The most important money lesson

Financial literacy is one of the most important financial lessons. Source: Supplied

Have you seen ESPN's 30 for 30 special "Broke"?

If you haven't, the episode explores the excess of professional athletes in the late '90s and early 2000s, chronicling the tales of several athletes who managed to amass and subsequently blow tremendous fortunes.

It's compelling in the way a car wreck is: It commands your attention even though you know it's oh-so horrible. I highly recommend you checking it out if you haven't already, as it's an excellent lesson in the importance of financial literacy.

While watching this special, I couldn't help but wonder what I would do if I found myself in a similar situation and became an overnight millionaire. It's easy for us wallowing in five-figure (or, in my case, no-figure) mediocrity to play armchair quarterbacks and scoff at how different things would be if we were the ones with the money. We would never blow it all that inanely and quickly, but, in reality, that just isn't true.

Somewhere there exists a list of all the lotto jackpot winners who've ever managed to lose their entire fortunes, and it's definitely a list that's several reams thick. In fact, an entire cottage industry has recently popped up to counsel folks who've experienced sudden financial windfalls. You'd think that once someone handed you a check for several million dollars, the last thing you'd need is counselling, but you'd be surprised.

Countless people who have struck it rich have struggled with their new found wealth. Source: News Limited

Like many people, I play the lottery, occasionally. The lottery invites its fair share of criticism from the mathematically inclined, but the people who blindly say playing the lotto is "stupid" are just as simple-minded as those who think that spending money on scratchies isn't. I understand that the chances of success are infinitesimal, but I'll willingly drop the same amount of money for nothing else than the few hours of daydreaming and idyllic planning it affords me. Still, if I won, can I say that I wouldn't find a way to ruin it? Of course I can, but no one wants to admit to themselves that they're woefully unprepared to handle wildly large sums of money.

The key difference between an earned millionaire and an overnight one, speaking as someone who is neither, is transition. The small business owner who's worked his way to the top started at one point and then gradually climbed his way up. A lottery winner or newly-drafted athlete does the exact opposite. Rather than climb, they leap; jumping from meagre beginnings to financial apexes in single bounds. The key here is transition, or the lack thereof. The self-made millionaire has time to acclimatise to each new point along the continuum of wealth and income. He's forced to live within his means because at no point does he experience a wild shift in his income. Whenever he reaches his pinnacle, wherever that may be, he's still living within his means. Those means just happen to be significantly more substantial than when he first started out.

Winning millions in Lotto is a common fantasy for plenty of people. Source: ThinkStock

In contrast, people who experience financial windfalls have no idea how to handle themselves. Perhaps because there is a god and he has a sense of humour, but lottery winners always seem to be poor blokes toiling away in some godforsaken corner of the world. One night they go to bed trying to decide whether heat or Foxtel is the more essential utility and then they wake up with enough money to create their own reality series if they so desired. There's no way to prepare for this, or at least no way beyond the childlike lists we've all made outlining the things we'd buy once we become filthy rich. Don't blame it all on the individuals, though. Society certainly plays its role in all this as well.

Society expects a millionaire to act a certain way and to live a certain lifestyle. Yes, with over half a billion dollars, you could afford to do pretty much anything you damned well pleased, but in reality the athletes who sign million dollar contracts and the lottery winners who walk away with less than half of their $20 million jackpots are under the gun much more than we think. All that income is taxed at the highest possible rates. Every single family member you never knew you had comes crawling out of the woodwork searching for a handout. To keep the tax office and all those pesky relatives at bay requires accountants, lawyers and financial planners, all of whom require a fat slice of your wallet as well. A blown knee, a couple of boats or a failed business/marriage later, and, bingo, your financial success might as well have been a mirage.

Society expects people with a certain income to behave in a particular way. Source: News Limited

The importance of financial literacy and restraint is just as relevant for us regular guys, and particularly young people right out of uni, as it is for freshly-minted millionaires. After four years of being continually broke, the transition to a job that nets you $1,500 of take-home pay every two weeks doesn't leave much room for adjustment.

You want a sweet new TV, some fresh threads and a high enough bar tab to impress the ladies on the weekends. That doesn't seem like too much to ask, but then you've also got your rent that's way too high, you'll want to to eat, regularly, and you'll also need a nice Foxtel package to show off that big TV you just purchased. Don't forget you're also going to need a suitable ride to get you to and from that job that affords you those big bar tabs, not to mention some running water to wash off all that glitter and stripper stink from your hung-over self. In short, as secure as you may feel with your income, it's incredibly easy to become that poor sap juggling utility bills and living pay cheque to pay cheque.

Going from having no money to being a millionaire requires a definite adjustment period. Source: News Limited

I have, at multiple points in my life, including now, been poor. Not without support or supplement, but definitively poor through the virtue of having zero steady income. I've found that this can be a blessing of sorts: For every time I've been able to find work, the previous lean times reminded me that nothing lasts forever. Instead of splurging on a new TV or big nights out at the club, I stuck with the same old set I had in uni and opted for happy hour over opulence. When I inevitably find a job and/or land that six-figure book deal that I'm sure some publisher is just itching to offer me, the presence of a pay cheque will be a godsend I won't mess up. I know better. I'll be smart with it. I'll continue to live within my means, for you never know when the lean times might come roaring back with all their anorexic leanness.

I really could use a new TV, though.

This article originally appeared on Ask Men and is republished here with permission .

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