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:

  • Vacations
    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
    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
    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.

Bottom Line
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.

Related Articles
  1. Economics

    Why Enron Collapsed

    Enron’s collapse is a classic example of greed gone wrong.
  2. Credit & Loans

    Top 5 Reasons Why People Go Bankrupt

    The biggest cause of bankruptcy in the United States is medical expenses.
  3. Personal Finance

    Top 10 Investopedia Personal Finance Stories of 2015

    Every year is the year to start saving money, and 2015 was no different.
  4. Credit & Loans

    The Fair Debt Collection Practices Act (FDCPA)

    The Fair Debt Collection Practices Act, or the FDCPA, prohibits debt collectors from using abusive, unfair or deceptive practices to recoup money.
  5. Term

    What's a Debtor?

    A debtor​ is an individual or company that owes money.
  6. Credit & Loans

    Your Guide To Chapter 7 Bankruptcy

    Filing for Chapter 7 bankruptcy triggers an automatic stay that forbids businesses from collecting on your debt, or suing you.
  7. Budgeting

    Preventing Medical Bankruptcy

    If you’re worried medical expenses could overwhelm you, there are some thing you can do to ease your concerns.
  8. Budgeting

    10 Financial Habits That Will Lead to Bankruptcy

    Learn 10 easy financial mistakes that can lead to ruin even for responsible people, including the hazards of ignoring credit scores and letting bills stack up.
  9. Retirement

    What Was The Glass-Steagall Act?

    Established in 1933 and repealed in 1999, the Glass-Steagall Act had good intentions but mixed results.
  10. Credit & Loans

    How Credit Card Delinquency Works

    When you pay less than the minimum monthly payment on your credit cards, you become delinquent.
  1. Can personal loans be included in bankruptcy?

    Personal loans from friends, family and employers fall under common categories of debt that can be discharged in the case ... Read Full Answer >>
  2. Can a 401(k) be taken in bankruptcy?

    The two most common types of bankruptcy available to consumers are Chapter 7 and Chapter 13. Whether you file a Chapter 7 ... Read Full Answer >>
  3. Are variable annuities protected from creditors?

    Whether your variable annuity is protected from creditors depends on the state in which you live. About three-quarters of ... Read Full Answer >>
  4. Will my credit score suffer from debt consolidation or refinancing?

    You have several options for reducing your debt burden. You can enroll in a professional debt management plan, or consider ... Read Full Answer >>
  5. Can I file for bankruptcy more than once?

    Filing bankruptcy is never a simple decision, but sometimes it is the best thing you can do in your current financial situation. ... Read Full Answer >>
  6. Can creditors garnish my IRA?

    Depending on the state where you live, your IRA may be garnished by a number of creditors. Unlike 401(k) plans or other qualified ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  3. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  4. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  5. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  6. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
Trading Center