What would you do with $1 million dollars? Silly question I know – and one that I’m sure will get a lot of silly answers. Don’t worry, there’s nothing wrong with admitting that you’d be tempted to buy a sports car, handbags and luxury timepieces. In fact, that just shows you’re normal.
The fact is most of us would be tempted to spend that money on ridiculous purchases, family or no.
However, it’s not just unrestrained “personal” spending that’ll get you in trouble – it’s the “entourage” that forms around you when everyone knows you have money. That’s when long-lost “friends” and relatives hover around you like flies on dung hoping you’ll steer some their way.
The point I’m try to make is this – anyone is capable of blowing a huge amount of money. Anyone of us is capable of repeating Mdm. Pusparani Mohan’s mistake of blowing $1 million dollars.
A Horrible Tragedy that Led to an Even Worse Disaster
Most of us still remember the unfortunate incident in early 2012 when a Chinese national hijacked a taxi in front of the old budget terminal at Changi Airport and struck 34-year old Chandra Mogan, killing him.
Mr. Chandra left behind a wife, Mdm. Pusparani, and four children.
Despite the tragedy that struck Mdm. Pusparani and her family, due to the efforts of the Changi Airport Group (CAG), about $800,000 was raised for the family. Combined with the payouts provided by the insurer, almost $1 million was at Mdm. Pusparani’s disposal to care for her family.
Thankfully, Mdm. Pusparani, assisted by a financial advisor, used the money on the following:
- Allocated $200,000 to each of her children
- Moved back to Johor Bahru where the cost of living was lower (and her SGD could go farther)
- Used $50,000 of her remaining $150,000 to pay off the family’s debts
She was doing everything right… at first
Then, she made every financial mistake you could possibly make – and lost it all!
How did she do it?
Here’s a play-by-play account of how she lost nearly $1 million dollars:
- She used her remaining $100,000 dollars to invest it in a relative’s transport business.
- Her relative said $100,000 wouldn’t be enough, so she took out half of her children’s money – $400,000 to (a total of $500,000) to buy 3 lorries for the relative’s transport business.
- The transport business eventually went bust, she lost that $500,000 investment.
- She eventually withdrew the remaining $400,000 on “living expenses” over a period of five months. To put that into perspective, that’s $80,000 a month – that’s 1.3X the annual salary of the average Singaporean.
As of today, Mdm. Pusparani and her family are barely surviving on her salary of $780 a month.
Here’s What You Can Learn from This Situation
The sad thing is that Mdm. Pusparani didn’t need to go through the pain and embarrassment of blowing $1 million dollars in donations and insurance payouts. But that’s what happened.
However, it’s safe to say that she’s already learned a great deal from her misfortune, and her experience is something we can all learn from.
Here are 3 financial life lessons you can learn from the widow who blew $1 million dollars:
#1 Take Care of Your Children First – And DON’T Touch That Money! It’s for Their Future!
If you get your hands on a huge lump of cash because you inherited it from a relative, won the lottery, or a loved one passed away – the first thing you should do is set aside some of it for your children!
Mdm. Pusparani did the right thing at first by putting $200,000 aside for each of her children and keeping $150,000 for herself. She even used $50,000 of her $150,000 to pay off the family’s debts.
She did what every parent should do – she put her kids before herself.
However, she ended up taking out $400,000 of their money for an investment with the intention of paying it back.
She made the mistake of putting herself before her kids.
Unfortunately, it ended up costing her kids dearly – as all of the money disappeared once the investment went belly up.
Lesson Learned: Unless it’s absolutely necessary to take out that money for you or your children’s medical or educational expenses, it’s best to put that money aside in a savings account (at the very least) until your children are adults or responsible enough to handle that amount of money.
#2 Relatives WILL Ask You For Money – Just Remember Your Immediate Family COMES FIRST!
If you end up with plenty of cash because you got lucky at the casino or a relative left you some cash in his/her will, it’s almost a guaranteed that you’ll see friends and relatives coming to you for a loan or shamelessly asking you for cash.
It’s sad, but true. So before you give in to every sob story you hear and you open up your heart and pocket book to those asking you for cash, don’t forget your first priority when it comes to that money – your immediate family.
After you’ve set aside enough money for your children and paid off any outstanding debts, should you consider (or better yet, not consider it at all!) lending money out.
According to Mdm. Pusparani, she was pressured by her family to invest in her relative’s transport business, which ultimately failed. However, even then she still had (actually, her children had) $400,000 – but she didn’t put her immediate family first, and blew that money on “living” expenses.
Lesson Learned: Use your money to take care of your immediate family and any outstanding debts first before you even entertain the thought of lending money out to friends or relatives.
#3 If You’re Not 100% Positive You Can Manage a Huge Sum of Money – Consider Getting an Annuity
The reason why Mdm. Pusparani initially made the right financial decisions with that huge amount of money is because she had a financial planner assisting her.
The reason why Mdm. Pusparani blew nearly $1 million dollars within a year is because she didn’t consult a financial planner on her monetary decisions and she didn’t make the effort to enhance her financial knowledge.
If she had taken either action, she probably would have never have made that terrible investment that lost her and family $500,000. Nor would she have blown the other $400,000 in a matter of months.
Lesson Learned: If you have absolutely no financial knowledge and cannot trust yourself to overspend, you should consider either dumping the money into a 10/15/20 year bond so that your money is safe (especially from the temptation to spend it) or an immediate annuity, which will turn a lump sum into a monthly/annual payout that’ll make it easier for you to manage your money.
Final Note: Although it’s not listed as a lesson you can learn from Mdm. Pusparani’s case, financial education is an important factor that could have prevented this sad situation in the first place.
If you’re ever fortunate enough to receive a large sum of money but don’t know how to manage it, it’s wise to engage a Certified Financial Planner (CFP) who can help you manage and prioritize what you should use that money for. That way, you can make that cash last, or make it grow further!
While it’s good to hire a professional to offer you advice, it’s also a good idea to enhance your own financial knowledge so that you’re 100% positive about every decision you make. You can learn plenty from our Learning Center.
What are some of the other financial lessons you can learn from Mdm. Pusparani’s experience? Share your thoughts with us on Facebook! For even more useful information on everything personal finance, visit MoneySmart today!
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