Luther Ellis was a talented football player from the University of Utah. He was first-round draft choice in 2000 and player for the Detroit Lions. He made $11.6 million from 2000 to 2004. According to his report in the Salt Lake Tribune on January 22, 2010, he said he had filed Chapter 7 bankruptcy. Luther listed $1,380,000 of assets and $4,400,000 of liabilities – including $37,500 in delinquent state and local taxes.
Luther said that although the Detroit Lions did a good job putting on financial programs, teaching savings, investing, and giving statistics on how many of the football professionals would be dead broke in three years, he didn’t listen. Instead he said to himself, “That won’t be me!”
Sports Illustrated was referred to in the Salt Lake Tribune article on its studies showing 78 percent of all former NFL players either filed bankruptcy or experienced financial stress due to joblessness or divorce.
So what happened to Luther Ellis? Here is his answer: “I made bad choices… the bankruptcy wasn’t anything to do with drugs, gambling, alcohol, women or anything else.” Fortunately the NFL organization had set up a pension and qualified deferred compensation plans to retain over $500,000 for Luther that creditors could not touch.
My point in referring to Ellis is that this kind of experience does happen to a lot of people, even people who seemingly make enough money that it shouldn’t happen to them. I am not saying that financial instability has the possibility of happening to you, I’m saying it does happen to you. In my 35 years of experience, we all go through financial cycles in our lives, the highs and the lows. When we are making good money, we can’t imagine that it will ever end. When things are tight, and we have to watch every dollar, we manage and say to ourselves, “when things get better I will never forget how bad it is to be so broke.” But when things get better, we forget and don’t watch after little things as much and we did when things were tight. It goes in cycles, as I said.
So how can you level out these financial highs and lows? The best way, as I have said lots of times before, is not to assume that making more money will even things out (look how well that worked for Ellis). The best thing to do, no matter how much money you make, is to create a spending plan. A written plan lets you refer back to it and review it often so you can stay on track. A written plan lets you forecast your income and expenses and helps you make sure you are balanced so that you don’t spend more money than you make.
In the beginning, when you are just starting out with a spending plan, you will need to create one, live with it and track it for 90 days and then come back to it and tweak it after you see how well it is, or is not working. Then, when you grow accustomed to spending and saving based on a written plan you can go to an annual review of the plan. But remember, you will track this plan every day of every week of every month of the year. A plan without daily tracking and comparing is no plan at all. Make sure you compare what you had planned to do with your spending each week with what you actually did. If you have a spouse, then meet together weekly and review the planned income and expenses and make notes on how you will do better the next week, and the next month. Practice instant forgiveness with your spouse if they don’t follow the plan perfectly. Remember, you will be the one who needs the instant forgiveness the next time, so don’t hold on to anger about mistakes. This is a recipe for disaster. A plan lets you make mistakes because you can see how to correct them and this makes it easier for you to give that instant forgiveness.
To set up a spending plan go to moneymastery.com.
As you track and compare your spending for many months you will see your financial personality show up. It is like looking into a financial mirror and seeing yourself for what you really are. If you avoid this process, you will make decisions that will keep you in debt and in trouble for many years.
If Luther Ellis would have formed good personal money managing habits while he had little money in college, he could have avoided filing bankruptcy later when he made more than enough money that he shouldn’t have had to. Don’t think that just because you only make $50,000 a year that Luther’s example doesn’t apply to you. Don’t think that if you made $11.6 million this wouldn’t have happened to you.
It matters not how much you make, only how well you handle the emotions surrounding your money that counts.
Postal workers making a modest $35,000 a year have retired as millionaires because they learned how to manage their emotions so they could manage their money. Doctors and professional athletes have died broke because they thought that money should solve everything. I am telling you this experience has nothing to do with money — it has everything to do with your emotions.
We are all emotional animals, and this is a good thing. So to be successful with your money, you must learn the psychology of managing money. This means emotional training for emotional decision-making. This is not about math, or accounting, banking or finance. It is all about emotions. I promise you, if you will learn to manage your emotions, you will have little, or no financial trouble.
For more information on how to handle emotions, set up a spending plan, and learn how to save money all while eliminating debt, call me: (801) 292-1099, ext. 2.