11/09/2012 08:11 am ET Updated Jan 09, 2013

Handle Your Money in a Way That Will Let You Achieve Your Dreams


"Say, when this is all over
You'll be in clover
We'll go out and spend
All of your blue money, blue money."
-Van Morrison

"One fine day I'll find the way
To move from this old shack.
I'll hold my head up like a king
And I never never will look back.
Until that morning I'll work and slave
And I'll save every dime."
-Joe South

"Freedom is just another word for nothing left to lose"
-Janis Joplin (Kris Kristofferson)

Before you start working towards your dreams, you need to ask a hard question: Are you a saver or a spender? If you are spender, you need to keep focused on saving enough to truly achieve the dreams and things you desire.

The world is an increasingly complicated place, but one rule has held true for centuries: People who have financial security control the destiny of the people who don't.

As the late John Savage, a frequent speaker at the Million Dollar Round Table, said, "Spenders in the world always work for savers. It never happens the other way around."

The rich get richer for many reasons, but one is that they take a long-term view about their money.

I don't know if they have rehab for spending addicts. If not, someone ought to start one.

I was flipping though the news channels when I heard a guest demand that we not give tax rebates to poor people. "Rich people accumulate wealth. Poor people accumulate things," he said.

He had a trickle up theory of economics. He believed that poor people will go on wild spending sprees. The money will burn a hole in a poor person's pocket, while wealthy people would sock it away.

Most poor people need their income just to survive, but there are many who are broke because they don't handle money well.

There is a financial dividing line that separates savers and spenders. The savers wind up with wealth and the spenders wind up with debt. People on their way to wealth have good savings habits. People living beyond their means blow money on stuff they don't need.

Spending is instant gratification, like snorting cocaine. One shopper told me that she got a high from shopping like a high from drugs. Shopping doesn't work for me. When I walk into a store, my hatred of shopping contorts my face to resemble a mass murderer or a professional wrestler. People run out of the aisles when they see me. I buy what I came to find and get out as quickly as possible.

My goal is to accumulate wealth, not things.

When I was growing up, I used to think some people didn't have good jobs. They lived in rundown houses and often had their cars repossessed. I found out that they made as much money as my parents. Sometimes more.The people who lived in rundown houses spent money on gadgets they didn't use and motorboats that never made it in the water. They lent money to "family and friends" even though they should have been paying their own bills first. They had no sense of long-term planning and ultimately had no money.

Spending beyond your means is an addiction. A spending addiction is probably as hard to cure as a drug addiction. It requires changing lifestyles. I've frequently hired a casual laborer. He is good at his craft and for 20 years made really good money. None of which he saved. Whenever I saw him, he talked about skiing trips, his bass boat or his brand new trucks.

When the economy turned, his house was foreclosed on and they repossessed his trucks. He has no savings or credit. His focus was on accumulating possessions. Now he doesn't have those possessions. Or any money either.

There is going to be a day when it all hits the fan. Americans are competing against workers in countries like China who have great savings habits.

Some argue that blowing money is a form of "financial freedom." I hate the J.G. Wentworth commercial where people are screaming "It's my money and I want it now." I hate it worse than the Cialis commercial where they are sitting in bathtubs in the middle of a field.

I have an obvious bias. I am in the business of setting up structured settlements for injured people. Wentworth is in the business of ripping them apart. I spent a lot of my time and my own money convincing some legislatures to regulate Wentworth and companies like it. We made it tougher on Wentworth, but they are still around.

Wentworth has an easy task. All they have to do is get people to focus on the immediate and forget about the future. I try to get them to focus on the long-term.

Wentworth and I have a different view of "financial freedom." Wentworth's idea of financial freedom is that you can get your hands on a wad of money and spend it immediately.

To me, real freedom means stability, security and independence. It means never running-out of money. It means never having to work at a job you hate, because you can't afford to quit. It means never becoming a slave to your creditors.

In short, it means having control and stability in your life.

That is what real financial freedom is about.

Not many people have true financial freedom. And many who have the opportunity to gain it screw it up.

There are a lot of financial choices in the world. Many companies prey on the "I want it now" mentality. Payday lenders, tax refund anticipation loans, car leases, subprime mortgages and credit cards are fairly recent additions to the world of personal finance.

All of those vendors will get you immediate cash -- at a price to pay in the future.

Our grandparents didn't have access to quick money. Debt absolutely frightened them.

Maybe we should be frightened, too.

As Joe Nocera pointed out in A Piece of the Action, his classic history of personal finance, the rise of credit cards, mutual funds, 401(k) plans and individuals investing in the stock market are all things that have happened primarily since the mid-1960's.

Our parents lived in an era where they worked a lifetime at one company and got a monthly pension when they turned 65. Our children will switch jobs frequently and will need to depend on contributions and the investment results of 401(k) plans to allow them to retire.

Our parents and grandparents had systems to protect them. Our children and grandchildren are on their own.

I preach a simple gospel: Think about the long-term. Don't trust Wall Street, your government or your employer to take care of you.

Janis Joplin sang, "Freedom is just another word for nothing left to lose." Actually Janis, (and Kris Kristofferson, who wrote the song), had it semi-right.

Real freedom means living in a way where you can have fun, enjoy life and know that you are never going to hit a time when you are out of cash and out of luck.

Instead of, "It's my money and I want it now," a better way to think is, "It's my money and I want it always."

In the end, everything comes down to developing good habits.

I stumbled upon a fascinating academic article, entitled "The Ticket to Easy Street?
The Financial Consequences of Winning the Lottery."

In short, it asks the question, "Does throwing money at people solve financial problems or just push those problems down the road?

The paper gives empirical proof of two things that I've been saying for a long time: 1) Bailouts don't work, and 2) People who get large sums of money run through it in five years or less.

The professors came up with an ingenious and comprehensive method for their research. They obtained a list of winners of the Florida lottery Fantasy Five lotto game from April 1993 to November 2002.

They compared those names to Florida bankruptcy records to see how many of the winners filed bankruptcy and when. Filing bankruptcy means a person has completely hit bottom. You wouldn't expect that to happen to a lottery winner. Yet it does. Over and over again.

In the first couple of years after winning a jackpot, people who won small amounts were more likely to file than were people who won larger amounts. That makes sense. Someone with a large amount of money can initially weather a bad time or keep creditors at bay.

After three years, large winners are more like likely to file bankruptcy than small winners. Also, people who received large sums did not use that money to pay down debt or increase assets.

Winning the lottery did not help people increase their net worth. They needed to have set goals and an understanding of finance to make their lives better. It appears that they did not have those fundamental tools.

Giving someone a lump sum does not make financial problems go away. It's like putting an overweight person on a crash diet. Unless you can fix the underlying problem, they are going to fall back to their old habits.

This is true for lottery winners and the average American, too.

Hankins, Hoekstra and Skiba concluded that, "While we cannot be sure that homeowners or other beneficiaries of government aid would respond in the same way lottery winners did, the results may warrant some skepticism about the long-term efficacy of such a bailout."

Instead of looking at short-term solutions, people need to make long-term economic changes.

Otherwise, like the Florida lottery winners, we are going to wind up where we started from. Or worse.

Don McNay's new book, Life Lessons from the Lottery, will be released on Kindle on November 17.