Perhaps the best known bit of financial advice out there is that you should “spend less than you earn.” You’ve probably heard it over and over (and over!). And for good reason.
This is a bulletproof solution to whatever financial woes you might face. And yet… So many people seem incapable of doing it.
For an extreme example, consider the case of (currently former) NFL player Chad
Johnson Ochocinco Johnson… While he reportedly has assets worth a total of $4.7M, he been spending money like it’s going out of style.
According to court documents related to a disagreement of child support payments, he’s currently unsigned by any NFL team and bringing in around $3k/month — so $36k per year. And yet he’s spending far more than that — month.
This includes over $16k/month in child support payments plus over $30k/month in other expenditures. This includes over $9k/month in mortgage payments, $5k/month for entertainment, $3.5k/month for clothing, $2.6k/month for car payments, $2.5k/month for food, $1k/month for pet expenses, etc.
When you total it all up, he’s spending roughly $45k/month more than he brings in. Each and every month. In other words, if things don’t change, he’ll burn that that $4.7M in assets (which is largely tied up in real estate and cars) in 8.5 years.
Who knows… Perhaps he’ll catch on with another team (now that he’s out of jail) and stave off bankruptcy for awhile. But in the grand scheme of things, he’s headed for financial disaster.
No wonder many pro athletes wind up flat broke when they should be fabulously wealthy. They simply can’t handle their own good fortune.
And yes, as I noted above, this is an extreme example. But the math works out the same regardless of the magnitude of the numbers. If you spend more than you earn, you’ll wind up digging yourself into an ever-deeper hole.