Rich through Habits

We were pleased to read another review of Juggling Dynamite recently by someone who clearly gets the message. “Rich by Habits” articulates a key theme of the book: it is the little decisions that we make every day about our finances that dictate most where we will end up on the wealth scale in the future.
Whether we make 50k, 500K or 5 million a year, we still have to make choices every day about how much and where we will spend our income. We invest our finite time and energy resources into the things that we do to earn a living. The income that we receive from our efforts now represents the net reward for the expenditure of our finite energy. When we waste our money on frivolous things, depreciating assets, or self-destructive over-indulgence we are really making a statement, conscious or not, about the value we attribute to our very life force.
Sales marketing has brainwashed people into thinking that we can consume and indulge our every aspiration now without compromising our financial security for the future. Every week people ask me how they can have enough money for their retirement. The answer…drum roll….spend less, save more and be very careful with how we invest our savings once we get some. The truth is not everyone should have a big house full of new furniture and two new cars in the drive!
It used to be that home ownership was a sign of financial discipline because people had to typically save at least 25% of their own capital first before they could ask to borrow a mortgage and buy a house. In order to save for their first house people used to go without cars and expensive clothes, without dining out, without trips, without whatever they could avoid, in order to amass some savings from their income. Once they had developed the self-discipline to amass the savings, it was then considered evidence of the “character”, “capacity” and “collateral” criteria for borrowing money in the first place.
Not anymore. Today people are encouraged to borrow more than 100% to buy a home–no money down. On top of that, lax lending standards have approved the same people for new car loans, leases and a multitude of other cards and credit lines. We now have a whole society of apparent wealth and equity without actually having—well any! Not surprisingly many people find themselves with lots of “stuff” and absolutely no financial discipline, no personal habits that will enable them to amass money and keep it.
The madness has to stop. We need to re-learn the habits that many of our grandparents developed after the Depression– they learned to be frugal and careful. They bought based on what they had the money for, not based on what payments they could juggle. Our children are depending on us to teach and lead by example. If we lead well, these are lasting lessons that will serve them for a life time. And that’s a whole lot more lasting and valuable than any of the Made in China junk they beg us for daily, only to toss under the bed.

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One Response to Rich through Habits

  1. Anonymous says:

    I have heard the term “moral trap” as it relates to the Central Banks willingness to grease the skids to keep people spending.
    Is it any wonder the proliferation of debt is so pervasive, it seems every fiduciary has come to see their client as a profit centre and not someone you critically think on behalf of, moral trap?
    When all the experts that look out for me tell me I can afford it, I must be able to afford it, Right? L. Barrie

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