It often shocks people that millionaires go bankrupt. It shouldn't. While the more typical person is worried about retirement, their children's education and their monthly bills, millionaires are supposed to have it all covered, allowing them to live it up. That's where many of them get into trouble. They only have things covered if nothing changes and often things change drastically for the worse.
There are only a couple of ways that anyone becomes a millionaire. They can marry into money, get an inheritance or win it in a lottery - some might say marrying into money or getting an inheritance is hitting the lottery. Those are people that didn't earn the money themselves. Of course, there are other people that became millionaires the hard way, by earning it, either legally or illegally.
But once you become a millionaire, there are a million ways to lose it. (Learn some practical ways to make yourself a millionaire in 10 Steps To Retire A Millionaire and Become A Millionaire.)
Spending Too Much
It's a pretty simple concept: if you spend it, you don't have it anymore. If you're spending on quality investments that will appreciate over the long term, you will still have something, but if not, the result is often bankruptcy. Here are some examples:
If you're spending on a vacation to St. Bart's with a couple dozen of your "friends," then you have turned a good chunk of dough into some digital images and vague memories. But even if you spend on things that are far more tangible you can go broke.
Homes that are beyond your means even if you pay cash can bankrupt you if you can't afford the maintenance. Mowing a lawn doesn't sound expensive until you put in a putting green or have a large estate. Then there's cleaning, cooking and a personal assistant to run errands. Add to that a crew, entourage, posse, or whatever you want to call the people that collect checks from you for just hanging out and a house that's free and clear isn't free nor clear.
Cars are a status symbol, and a garage full of cars is impressive. Unless you consider them a devaluing asset. Jay Leno may say he's never lost money on cars, but unless you are the most astute collector and take meticulous care of things, cars eventually won't be worth anything. So leaving the Bentley at home while driving the Ferrari may sound like the millionaire lifestyle, but if you can't afford to replace them when they wear out, you're driving to the poor house.
Take Risk and Lose
If risk taking made you the money in the first place, it can take it away just as fast. Some would call it greed, but Donald Trump was a billionaire, then a negative billionaire, then a billionaire again as his real estate holdings went up, then down, then up. Big risk means big wins and big losses. Wall Street is littered with those that took risk, made it big, kept taking risk and lost it all.
Leave Planning to Others
This is typical of celebrities and athletes that can't be bothered to worry about things. They hand their money over to others and don't deal with it. This can happen to couples as well as there has been more than one spouse unaware of the financial situation deteriorating around them until it's too late. Being complacent about your money doesn't sound like what a millionaire would do, but when you have that much money and you never have to worry about a bill or the price of anything, it's pretty easy to just let someone else worry about the future. (Worry about your own planning, read Retiring: Is $1 Million Enough?)
Get Caught Cheating or Stealing
If you stole the money in the first place, like Bernie Madoff or Allen Stanford, then when you get caught, you go from rich to poor over night. Others, like the Enron executives, gained tremendously from cheating in their financial statements. They got caught too. There are plenty of other examples of those that became rich with ill-gotten gains only to find themselves broke and in jail.
While there are many ways addiction manifests itself, alcohol, gambling, drugs, to name a few. It's often the root cause of going from rich to poor. Business owners that think they have the world by the tail can start taking longer lunches, having that extra drink, hanging out at the bar or club, until the reason they were successful in the first place is lost in a gin-soaked haze. Add to that some bets and maybe even some more serious drugs and another story of rags to riches is born.
Once you have tasted the good life, it's hard to go backwards. The ego can get in the way and to maintain the life you have come to know and love when things go wrong many millionaires start borrowing. This allows them to maintain the façade as long as possible, but when the bubble bursts, they often end up destitute.
Many millionaires should change the old saying from, "easy come, easy go" to "not so easy come, so I better make sure it doesn't go." It's not as catchy, but they'll be better off.