Last
week former professional boxer John "The Beast" Mugabi flew into town,
the first time he has been back to the country in 26 years.
Mugabi
at his peak fought for the middle weight tile against Marvin Hagler, in a
fight that earned him the equivalent today of $1.6m (sh4.5b).
However, mismanagement of his money and spending sprees for which the phrase "a
rural approach to urban excitement" was coined, blew this and all his
prior earnings and today has little or nothing to show for it.
He is not the first and will not be the last professional athlete to squander his earnings.
Other
athletes have had better guidance. Former professional tennis Andre
Agassi made millions of dollars in prize money in his two decade long
career. However, his manager, put him on an annual salary, which was
fraction of his annual earnings while the difference was invested in
businesses and real estate. Agassi, who retired about a decade ago now
lives off the proceeds of his investments, which have since grown to be
many times larger than the total earnings of his career.
One
may argue that Mugabi's earnings pale in comparison to Agassi's and
therefore Agassi was less likely to have blown it all even if he tried, but
there is no fortune that can't be blown.
Former
undisputed heavyweight boxing champion Mike Tyson once made a $20m
in one fight in the 1990s, but now lives on the edge of bankruptcy. His
career earnings were many times over what Agassi made.
"The difference between Agassi and the two boxers -- it's coincidental that they are both black, is their respective attitudes to money. Agassi's actions were dictated by the attitude that money is not for spending but for making more money unlike his boxer colleagues for whom money was for eating...
This is the same reason why fishing communities around the world are poorer than other agricultural communities.
Fishermen
consume all their catch and when they do, they just push their boats out to
go and catch more fish. A maize farmer on the other hand keeps some of
his harvest aside to plant the next crop. This ability to delay
gratification is at the bottom of determining the relative wealth of
individuals or communities.
Poorer
individuals are quick to wolf down their earnings or any windfall that
comes their way, wealthier people on the contrary invest or save some
money before consuming what's left.
About
fifteen years ago one wealthy Asian told the Financial Times of London,
when asked about how he accumulated his millions, his answer was,
"It's an old Indian trick. For every ten shillings I made I ate one
shilling and reinvested the other nine. I repeated until I was rich"
Given
the experience of financially illiterate boxers its clear that money
does not make money, its how we think that makes -- and ultimately
ensures that we keep, the money.
Said
differently there are only two ways to spend money -- to consume it or
invest it, the wealthier members of our society, those who have grown
genuine wealth not those who have made a profession of dipping their
fingers in the state coffers, is that their spending habits are biased
towards investment and not consumption.
An
1980s survey reported in the book "Millionaire next door" that the
average US millionaire owned a car that was on average not more
expensive than seven percent of his net worth -- the difference between
the value of your assets and liabilities. So in today's Uganda if you
bought a $48,000 4WD your net worth should be at least $700,000(sh2b). If
your networth is higher you are in illustrious company if not you have a
good chance of following Tyson and Mugabi down the slippery slope to
poverty.
"Networth however is not a practical indicator of wealth. You may be asset rich ---have square miles of land to your name, but still be cash poor...
On
the scale of financial well being you have poverty at the bottom, a
situation where a person can not sustain himself either for lack of
income or very low income. Then you have financial independence, where a
person earns enough to sustain himself but is often a paycheck away
from falling into poverty. The there are those who are financially
independent, they have accumulated income earning assets that can
sustain them even if they don't earn a paycheck. And then of course
there are the wealthy whose assets throw off so much more income than
they can consume that they nor generations to come may ever need to work
another day in their lives.
So
what Mugabe and Tyson needed to hear twenty years ago, is that money is
not for eating but for making more money and secondly, invest or save
first and consume the rest and not the other way around.
And
you need not wait for the windfall money, in fact it would do you a lot
of good if you can shift your mentality before the windfall comes.
