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This is a story by someone who is close to me, and is about how fortune, easily gained, can also be easily lost.

From Riches To Rags…

This is a story about an aunt and her husband who lived a very humble life. The story starts out when she ran away from home and eloped with her to-be-husband, a man twenty years older. They were married and lived a normal life, until one day, the husband’s father passed away and left a great fortune to his only son. They didn’t know about the fortune at first; it was waiting for them in the house, waiting to be discovered. Sometimes, however, good fortune can be gone as quickly as it has arrived.

The great discovery


After the husband’s father passed away, he left his house to his only son, and he moved in with the family. One day, they were cleaning up the house, and then by chance, the aunt discovered a big basket under the bed in the master bedroom. She pulled the basket out from under the bed, and therein lied a great fortune: at least 20 giant gold ingots, the culmination of a lifetime of savings by the husband’s recently departed father. They had been sitting there all of this time, just waiting to be discovered.

They were understandably overjoyed at their discovery, and they started to think of all of the great things that they could do with their new-found wealth. Without any further delay, the aunt immediately sold all of the gold for cash, and at that time the 20 gold ingots were worth about $5,000,000.

The honeymoon

Life was great in the beginning.  The great discovery had immediately turned their fortunes around. The man had children from a previous marriage and he also had one son with the aunt, who was their favored child. While one daughter had to sleep in the basement along with the maid, the son was sent to Hawaii to study at the university.

Life was good in Hawaii. Everyone knows that Hawaii is where it’s at, but life is just that much better when you’re in Hawaii and you have money, too. The son had an allowance of $10,000 a month, ate at the finest restaurants, hung out with the rich and famous, and to top it all off, he was pimpin’ with a brand new Lexus.

Is there anything wrong with that? Not necessarily. My friend tells me that he was a really nice guy.

The aunt and husband were living a good life back at home, too. During the day, she enjoyed the spa, and he traded stocks. At night, they enjoyed the good company of friends as they ate fabulous dinners and feasts. On the weekends, an overseas trip was not out of the question.

They went and bought a second home that they could retreat to when they wanted to escape the first home. The aunt and her husband seemed to be doing so well, and they left the impression that they were also good investors and knew how to grow the money. They made a good case, and my friend’s mom decided to invest $100,000 with them.

The meltdown

After 5 years had passed, it became apparent to everyone that the aunt and the husband had not been investing at all — instead, they had been drawing down on their capital, which was finally reaching its limits, and when it ends, it ends hard.

They were running low on funds, had massive debts to pay, and nobody in the family was willing to “invest” or lend any more money to them. They declared bankruptcy and lost the second house, and then they lost the first house as well. Their son was forced to return home from Hawaii, though at least he had been able to finish his studies.

Once the dinners stopped, the friends stopped coming over, and family that never saw their money again were very displeased. They had to move into an apartment, and returned to the humble life that they used to know, before they had stumbled onto their fortune.

They lost everything, and my friend’s mom never saw a dime from her initial $100,000 investment.

The lessons

  • One cannot live on capital consumption for the long term. In other words, easy come, easy go.
  • The grass is not always greener on the other side of the fence.
  • Proceed with extreme caution when investing with family and friends.

This post is part of the Dysfunctional Family Member Coffee Roundup over at First Gen American.

Other great posts in the coffee roundup:

So, reader, what are your thoughts? Is this a true story, or is it an analogy? You decide. I’d love to hear your stories.

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About

Kevin has left the office, and he is currently fighting the rat race by working on his own business. He enjoys exploring unvisited places around the world and gaining new experiences. He believes that by properly managing our energy and time, we can learn to invest our lives wisely.

49 Comments Kevin on Aug 30th 2011

49 Responses to “What My Dysfunctional Aunt Taught Me About Wealth and Finances”

  1. [...] Invest It Wisely =What My Dysfunctional Aunt Taught me about Wealth and Finances. [...]

  2. I guess the last lesson is “easy come, easy go.” Time and again, these stories still continue to amaze me but it’s a fascinating story nonetheless.

    Thanks for contributing to this month’s coffee talk. What a great read. They could have been set for life and instead the windfall was spent almost as fast as it was found. I guess $5MM doesn’t buy as much as it used to. To think that they didn’t even have a home with the proceeds is just insane. It really is true that you can put yourself into debt no matter how much money you have.

    • Kevin says:

      Can you imagine how much those ingots would be worth today? What they could have done is used some of the wealth to pay off all debt, buy out a house, and life a good, comfortable life, if not an extravagant one. They could have rebalanced some of the ingots into the markets as the latter fell, while still keeping a couple for long-term savings and intergenerational wealth. Sigh… the possibilities.

    • Kevin says:

      P.S. easy come, easy go is exactly it! I added it to the post… thanks for the inspiration. :)

  3. I totally agree with your “easy come, easy go” line. That’s why when investing, I prefer to avoid easy money. As for personal wealth, we all need to be careful of what we do. Accumulating wealth is hard, while destroying it is far too easy.

  4. Wow, what a story. It’s amazing how having too much money can ruin some people. It’s quite unfortunate, but offers great lessons for many. Thanks for sharing.

  5. krantcents says:

    Instant wealth never works out very well. That is one of the reasons lottery winners usually waste their winnings. Many professional athletes run out of money as well. You need some financial skills just to select professionals to help you manage the money.

    • Kevin says:

      So important to learn those lessons! What I really hate is how there are so many sharks looking to take advantage, too. That’s why financial education is so important.

      I believe that Google has invited financial speakers to their company for the same reason — employees finding themselves with stock options worth millions but not knowing what to do with it!

  6. DIY Investor says:

    Lot of great lessons in your story. I feel sorry for people who inherit a lot of wealth because for many people life is about achieving difficult goals and when wealth is inherited the incentives for achievement are lessened.
    There are of course the Paris Hiltons of the world whose goal is apparently to party life away so inheriting massive wealth fits well.

    • Kevin says:

      It definitely changes things if money is not much of a challenge. I really do think it depends on intrinsic motivation and goals, though, as well as the path one has taken through life. If everything’s always been handed to someone on a silver platter, it’s hard to blame them for their excesses… on the other hand I think that people who have worked toward their millions honestly and legitimately will really appreciate it.

      Is it possible to appreciate it even if one didn’t build it themselves? I think it is, if the parents embrace their children in the world of money, show what is required to generate the wealth and how to preserve it. If one’s completely unprepared and just happens upon a windfall, then that money’s going to be gone. That’s why I believe it’s so important to install good financial habits, whether one is poor or rich. In fact, learning while poor is better since it’s harder to make serious mistakes. Missing a couple rent payments or having to work evenings for a while (yes, been there ;)) s nothing compared to losing millions!

  7. [...] Invest It Wisely =What My Dysfunctional Aunt Taught me about Wealth and Finances. [...]

  8. It sounds so similar to the story of most lottery winners. Easy come, easy go, is right.

    • Kevin says:

      It’s really unfortunate. That’s why it’s so important to cultivate good financial habits before you have the ability to do real damage… like lose a few million.

  9. I agree with the lessons in the story!!!! Moderation in life and you will be wealthy.

  10. Cynthia says:

    What an amazing story! Amazing that they had such a windfall and amazing that they didn’t see what was coming. A very cautionary tale. I’m watching my kids these days struggle with the same things (not to mention myself) — when they get their Saturday allowance — what to spend, how much to spend, whether to save (other than what I enforce) — I hope they absorb some of these lessons young.

    • Kevin says:

      I hope so too! Best to lead by example. Unfortunately for my friend’s aunt and her family, I guess they didn’t have that chance and had to learn the hard way. :(

  11. Coffee Talk: A Few Things I Learned from my “Old Contract” Grandfather | 101 Centavos says:

    [...] Invest It Wisely:  What My Dysfunctional Aunt Taught Me About Wealth and Finances [...]

  12. [...] Invest It Wisely -What My Dysfunctional Aunt Taught me about Wealth and Finances. [...]

  13. I don’t have any stories from close relatives who taught me anything except for my parents who showed me their frugal ways.

    The lesson I learned growing up attending some huge house parties is that wow, if I work hard, study hard, create something, I can be financially secure!

    • Kevin says:

      Hey Sam,

      It’s great that you had a frugal example growing up. You’re one of the most prolific savers out there (iirc), and it’s the productivity of people like you that keeps us all afloat!

  14. It must have been fun while it lasted. You are right about the grass being greener on the other side is not always the case. Sometimes there’s a huge load of debt financing the flashy lifestyle.

  15. Wow…. It would have been better if the grandfather passed down some financial lessons along with the gold ingots. They could have lived a comfortable life from the earning alone. That’s too bad.

    • Kevin says:

      He must have been a hard-core saver. It really came as a surprise to them to discover all of that under the bed! It’s too bad he couldn’t have passed the lessons on…

  16. Excellent story! I am in agreement with RB40 above, the grandfather should have invested the golds, in gold shares, gold ETFs etc. He should have sat and explain money to his son. I think the gap is in the Aunt’s and her husband’s and education and upbringing.

    • Kevin says:

      It’s too bad about the gap. For them it was really like winning the lottery as they discovered a treasure they hadn’t expected.

  17. 101 Centavos says:

    What a great story, Kevin. Finding the proverbial pot of gold, and eventually pissing the lot away in fast living. I heard a similar story of easy about a colleague’s brother. He inherited a large block of land that was half-pasture, and half-hardwood forest. They sold the hardwoods off for cash, and mortgaged the property to build a new house on it. They bought new furniture and new cars and toys and trips to Vegas with the cash, and when the money ran out, couldn’t make the payments on the new house. The bank wasn’t slow in repossessing the property. Poof!

    • Kevin says:

      They must have enjoyed it while it lasted, but what a waste… ! :S I guess in one sense, wealth flows to those who take good care of it.

  18. Easy come, easy go indeed. Whoa…whatta story to share.

    As others have said, what takes so hard to build up, can be torn down in seconds….

    Your lessons learned are great for everyone.

  19. Evan says:

    Lesson I take from it – Just because someone has cash doesn’t mean they have any clue what they are doing lol

    • Kevin says:

      Haha. It’s all in how they got the money. People who had to work hard for it tend to be the same that appreciate its value the most.

  20. [...] Kevin from Invest It Wisely tells a rather sad tale about what his dysfunctional aunt taught him about wealth and finances.  You won’t believe the story.  Easy come, easy go. [...]

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  24. I bet that 5 million was tax free too!

    I think your aunt’s family isn’t the first this type of thing has ‘happened to’. Heck, look at all the athletes and entertainment ‘starts’ that end up bankrupt in a flash. Giving anyone who is not educated at least a little in personal finance a large sum of money is asking for trouble. So many lose it all or end up addicted to something that only money can buy.

    I wonder what the child that lived in the basement thought of their destiny? Did she ever see a dime of any of it before it got tossed away?

    I could write enough to fill a library on this topic, but I have to skip this coffee talk unfortunately…

    • Kevin says:

      Hi Kris,

      That’s a really interesting question actually! I’d like to know the answer, myself… I do believe that the family ended up living in an apartment. :S

  25. Daniel says:

    What I tend to see in my family and friends related to money trouble most of the trouble occurs when one person is given money and has never been taught how to budget. I once dated a girl who thought that she was very savvy in the personal finance arena because she only purchased clothes that were on “sale”. She shopped every weekend! Not very savvy.

    • Kevin says:

      Heh, I know that type as well. ;)

      It’s also important for both partners to see eye to eye. So many problems can result when one partner (perhaps because they always use the money of others) just doesn’t have the same concept of the value of money as the other.

  26. [...] It Wisely: What My Dysfunctional Aunt Taught Me about Wealth and Finances – This is a story by someone who is close to me, and is about how fortune, easily gained, can [...]

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  28. B Kelly @ MoneyMasteryAcademy says:

    Loved the story – made the concept so easy to grasp… the part that jumped up at me was the fact that I can never rest on my laurels and think that living off my capital will be alright. It’s not alright as capital consumption is the fastest way to sink a ship that you worked so hard to float in the first place! Thanks for the reminder…

    • Kevin says:

      It’s true — even when we think we have it made, we can’t just rest on our laurels. Otherwise, the money will run out before we know it.

  29. [...] What My Dysfunctional Aunt Taught Me About Wealth and Finances [...]

  30. [...] building houses that continued to rise in value and continued to place people more and more into debt. In nominal terms, things would look great: People’s household wealth would be rising, [...]