We’ve all heard stories that sound too strange to be true: someone wins the lottery, takes home millions, and in what seems like no time, they’re right back to where they started—or worse. According to Forbes, approximately 70% of lottery winners go broke within a few years. Let that sink in. A few years! HOW?!

Now, if you’re anything like me, you might be thinking, “If I had $100 million, my life would be set. I’d invest, save, live comfortably, and never worry about money again.” And yet, the startling reality is that financial ruin is not exclusive to people who suddenly come into money. It’s also something that happens to those who have built wealth over years—celebrities, athletes, business moguls, you name it. So, why do so many wealthy people end up broke? The answer lies in two interconnected issues: a lack of financial literacy and a failure to manage money wisely.

It’s Not About How Much You Make, But How You Manage It

It doesn’t matter if you’re earning $2,500 a month or $250,000 a month; without financial literacy and solid money management skills, you can find yourself in financial distress. I know that sounds counterintuitive, but hear me out. Most people think that when you earn more, your financial problems simply vanish. But in reality, the only thing that changes is multiplication—in your income, and often, in your lifestyle.

Take the example of someone earning a hefty $250,000 a year. On paper, that’s an impressive salary—over $20,000 a month. But after taxes and other deductions, that take-home pay shrinks to about $12,000-$13,000 a month, depending on the state they live in. Don’t get me wrong, $12,000 a month is a fantastic income, more than enough to live comfortably. But that’s not the issue. The issue is what happens next: lifestyle inflation.

The Trap of Lifestyle Inflation

Lifestyle inflation is the silent killer of financial health. It’s when you start to match your spending habits with your new income, sometimes even outpacing it. Before they even know it, someone who landed that $250,000 job is moving into a sky-high, floor-to-ceiling window apartment, shopping for luxury cars, and heading to the nearest Louis Vuitton or Chanel store. There’s nothing wrong with indulging if you can truly afford it, but the problem comes when people equate “earning more” with “spending more.”

Why is it so tempting to inflate your lifestyle? Part of it is psychological. When we start making more money, we feel like we deserve to treat ourselves, and we do! But there’s a big difference between an occasional splurge and consistently spending at a rate that compromises your financial stability.

And here’s the kicker: people don’t just overspend on things they can pay for outright; they often finance these luxuries, taking out loans or using credit. This decision locks them into monthly payments that eat away at their income, month after month. Suddenly, that big paycheck isn’t as free and flexible as it once seemed.

The Real Cost of Keeping Up Appearances

We live in a world where appearances can be everything. Social media only amplifies this, showcasing the curated highlight reels of people’s lives—the designer bags, the luxury vacations, the sparkling cars. For high-income earners, this adds a layer of pressure to maintain an image, especially if they’ve achieved a certain level of fame or notoriety.

It’s a cycle: higher income leads to higher spending, which then demands an even higher income to maintain. But without proper financial boundaries, this cycle leads straight to financial ruin. I’ve seen people with six-figure incomes sweating bullets trying to pay bills because they’ve maxed out their earnings potential without leaving room for emergencies or future planning.

The Importance of Budgeting (Even When You’re Rich)

One of the most overlooked financial tools is the humble budget. People often think of budgets as restrictive or only necessary when you’re trying to save up for something big. But the truth is, budgeting is crucial for everyone, regardless of income. A budget helps you see where your money is going, control your spending, and make informed financial decisions.

Without a budget, many high earners fall into the trap of thinking that as long as they’re making money, they’re financially secure. But security comes from what you keep and invest, not just what you earn. The wealthiest people I know—the ones who truly have long-term financial stability—live below their means and allocate their resources wisely.

Lessons From Lottery Winners: Why Sudden Wealth Can Be a Curse

Let’s circle back to those lottery winners. Why do 70% of them go broke within a few years? Because sudden wealth amplifies existing spending habits. If someone who wins the lottery was already living paycheck to paycheck and overspending before their windfall, that pattern doesn’t just vanish when they get a big check. It often gets worse.

Most lottery winners don’t know how to manage large sums of money, so they do what they know: spend. But when the new cars, houses, and lavish trips add up, the money dwindles quickly. They haven’t built the skills or habits necessary to sustain their newfound wealth, and before they know it, they’re back at square one—sometimes even worse off, because they may have racked up debt trying to keep up appearances after the initial windfall is gone.

So, What’s the Solution? Financial Education and Discipline

Financial education is the key to breaking this cycle. Knowing how to budget, save, invest, and spend within your means can make the difference between lasting wealth and temporary riches. Here are a few practical tips:

1. Live Below Your Means: This doesn’t mean depriving yourself, but it does mean spending wisely. Just because you can afford something doesn’t mean you should buy it.
2. Invest in Your Future: Whether it’s real estate, stocks, or a retirement account, make sure a portion of your income is going towards long-term wealth-building strategies.
3. Keep an Emergency Fund: Even high earners need a safety net. Life happens, and having a cushion can prevent a financial hiccup from turning into a full-blown disaster.
4. Understand the Difference Between Net Worth and Income: Your net worth (assets minus liabilities) is a more accurate reflection of your financial health than your income. Aim to grow your net worth, not just your paycheck.
5. Stick to a Budget: High income or not, a budget will keep your financial priorities in check and help you avoid lifestyle inflation.

Final Thoughts: Build Habits That Last

Whether you’re a lottery winner, a high earner, or someone just starting to build wealth, the principles remain the same. It’s not about how much money comes in; it’s about how well you manage what you have. The rich can go broke just as easily as anyone else if they don’t respect their money and build habits that ensure long-term security.

Remember, wealth isn’t just about having money—it’s about keeping and growing it. So, take a page from the most successful financial stories out there: educate yourself, budget wisely, and always think ahead. Because true wealth doesn’t just look good—it lasts.