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SELF DESTRUCTIVE BEHAVIOR
For years, I have explained that 90% of all Americans, despite being really nice people, are financial failures. The confirmation of what I have been saying drove home like a thunderbolt over these twelve months. People in their 50’s, 60’s and 70’s would come in to meet me with nothing to their name. Nothing of significance. They had spent their lifetimes violating the most fundamental principles in terms of the use of money as a tool. The first principle is to make more than you spend. These people had made a lifelong habit of buying anything they wanted whether they could afford it or not. If they wanted to buy something, they would sacrifice their savings to get it. If they didn’t have the money to get it they would buy it on time. In fact, buying on time is one of the principle indicators of the poor. Wealthy people determine whether something they want is valuable and if the price is correct. If that is the case, they pay cash. Poor people ask,” What is the monthly payment?” If they can afford the monthly payment, they buy the item, even if they can’t possibly afford it over the long run. Over time, these monthly payments from various purchases, plus the enormous amount of interest they pay swamp their finances.
I have said over and over again, that if a person can afford to borrow money and pay back on the lender’s terms, they can afford the purchase. Most people, however, use regular banks to store their money. Once they have bought the item, and it has been paid for, both the principal and interest and all the money that those funds could have provided for them for the rest of their lives are all gone. In the event a person might be tempted to borrow money, but could not pay back on the lender’s terms, they can not afford the item. In this case, they are driving themselves into poverty.
Many of you have Bank On Yourself type contracts. The same rules apply. I have noticed that a small number of people borrow money from themselves, when they can afford to pay back the principal and interest. Using the Bank On Yourself concept, they are paying the principal and interest to themselves. Once the bills are paid, they have restored the principal and interest back in their own contracts and they have the item that they bought as well. There are a few who buy things using the Bank On Yourself concept but do not pay the principal and interest back to themselves. It is ironic that they will faithfully make payments to strangers, but choose to cheat themselves. Still, they are better off then someone with a standard bank because even when the money is out they are creating a death benefit to cover their purchase and they are also receiving dividends as owners of the company. Nonetheless, it is a poor strategy and should be entirely avoided. The easy way to eliminate the debt is by making arrangements to pay funds back on an automatic monthly basis, plus add whenever extra money becomes available. When this is done, the contract will be fully restored. Their purchase is paid for and their finances are growing.
I have perhaps over emphasized the damage that is done by any number of taxes we have to face. The tax man takes the first bite out of finances. Please be clear. It is equally destructive to waste money during a person’s entire working lifetime only to end up broke, when too old or too sick to meet their goals. By then the time frame is so short that meeting their goals becomes nearly, if not completely, impossible. I urge you, if you are young, presumably in your 20’s or 30’s, to save as much money as you possibly can. What possible harm could it do to accumulate funds as needed for emergencies and opportunities?
If you are in your 40’s or 50’s, I hope you will get serious, if you aren’t already, and begin saving money in substantial amounts. An individual who makes $100,000.00 a year or more should, in my experience, be able to save about $30,000.00 per year depending on family status. This is critical. Having cash in a place, where it is safe and freely available without questions allows a person to quickly maneuver to defend against problems that arise and provide the ability to take advantage of opportunities, when they become apparent. This is the way wealthy people become wealthy and the reason they continue to be wealthy.
In addition to this I too have come to realize that we have forgotten many basic principles and teachings. A particular fable comes to mind that may drive home what Bill is saying here.
The Grasshopper and the Ant.
During a bright summer day the ants were busy storing grain for the winter. A grasshopper noticed them and said “Why are you working so hard we have plenty of food right now come and play with me. The ants replied “you better prepare for the winter it is almost upon us.” “You silly ants, replied the grasshopper,” “you work too hard and never have any fun.” “Why worry about tomorrow, enjoy today!”
When winter came the grasshopper found itself all alone out in the cold with no food dying of starvation. However, the ants while were comfortable in their den with plenty of food. Then the Grasshopper knew!
I have found most people work all their life and plan on hopes. Thinking their savings and investments are enough. Not really understanding the elements that come into play later on. I call this hope or lack of understanding, poverty planing. Poverty planning requires no thinking requires no skill. By not understanding the elements that eventually come into play,Taxes, inflation, debt and the ever increasing cost to maintain lifestyle needs eat away at this type of planing. Many end up finding their nest egg is not enough and they soon run out of money or have to live life on less or with the help of others.
But what if we plan for tomorrow today? Wouldn’t it be better if you knew with some degree of certainty what you would have and for how long your money would last? You could live the best life today and still enjoy life later on.
What if we work backwards first, putting money away today to avoid many of the elements that come into play later on. Taxation, debt loss of buying power.
The wealthy build on this idea or principle and start their foundation first and their families remain wealthy. More importantly they teach their children how to be wealthy and to do the same and their families continue to be wealthy for generations. You too can do this as well but don’t wait till its too late to do anything!
Don’t end up the Grasshopper!