Skip to content

From 5 crores to 4 cows !

It was somewhere in 2011 that i got a call from Economic Times journalist Prashanth asking for my views about how people should deal with sudden fortune coming their way. The context was that a Kaun Banega Crorepati participant Sushil Kumar had won for the first time 5 Crs in the contest. Prashanth wanted me to tell how should people go about investing that kind of one time fortune, my view was that this kind of luck was unlikely to be repeated hence one should be extremely cautious as windfall gains would be followed by spending spree leading people back to square one.

You can read the 2011 report in ET below :

Today just over three years later Hindustan Times reports that Sushil Kumar is indeed, more or less, back to square one.

My view was that people do not respect large sums of money that they get unexpectedly as they :

1. Did not earn it (whether the money came via rich uncle who left an inheritance, stock options, lottery or KBC) so they start doing things that they would not have done otherwise like building a bungalow where a small house will do. Precisely what the above winner did.

2. instead of investing the money in FD’s, tax free bonds, some equity and a small house which can preserve and grow wealth people start ‘playing ‘ with the money in business ventures where they have no experience, loans to relative and friends etc. There is a mention of an FD interest that seems to be sustaining Sushil Kumar these days, that and the four cows that give him milk everyday seems to be the only return that he is getting.

No wonder his wife is upset 🙂

The reason for this is a fancy term called mental accounting, as we feel the money is free. It is not free,This thinking is mainly responsible for many who get large sums unexpectedly to lose it real fast and come back to square one. money is money and it does not care whether you got it via stock options or won the KBC or worked hard for saving it. So it is up to the individual to respect the money by investing it wisely whichever legitimate way it reached your bank.

As we wrote yesterday even a genius like Mozart could not sustain overspending

One way we can all not fall for this is to plan well for it, save and invest wisely so that wealth that came unexpectedly stays with us and does not go away as unexpectedly as it came leaving us much more miserable had it not been received in the first place.

Post a Comment

Your email is never published nor shared. Required fields are marked *