As many of you know, I have committed to using this blog to promote Financial Literacy. Today I would like to take a few minutes to discuss a somewhat sensitive topic - the topic of money. It is a topic that people are often reticent to discuss, but as a financial advisor, aka a “money doctor”, I feel it is part of my duty to my readers.
Money is something we think about often (or a lot?), but why are we reluctant to talk about it? Do we talk with our kids about money? If not, why not? Do we talk with our spouses about money? Will it cause stress and lead to contention? Do we talk with our parents about money or do we worry that they will think we are being intrusive? Will they misinterpret my intentions? Andrew Carnegie was quoted as saying: “Shirtsleeves to shirtsleeves in three generations.” Maybe part of the problem is we think about money so much, but talk about it so little.
Leo Tolstoy once said: “There are two ways not to suffer from poverty. The first is to acquire more wealth, the second is to limit your requirements. The first is not always within our power, but the second is always in our power.”
Another great quote comes from none other than Dr. Seuss: “You have brains in your head. You have feet in your shoes. You can steer yourself in any direction you choose. You're on your own and you know what you know. And you are the one who'll decide where to go.”
Wealth is not about having a lot of money, it's about having a lot of options. Wealth gives us more flexibility and therefore more control over the direction of our lives. So, how do we accumulate more wealth? We start by recognizing the principle that wealth is measured in time, not in dollars. Another principle is to invest in yourself - it's your best asset. Adam Smith, the author of the classic “Wealth of Nations” said: “Money, says the proverb, makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little.” So start early; start when you are young. Find that little to get started. The one thing you cannot make up is lost time.
Will Rogers said: “Too many people spend money they haven't earned to buy things they don't want to impress people they don't like.” In other words, deferring or delaying gratification is an important element in accumulating wealth. We have all heard the stories about the rich and the famous who end up in bankruptcy. For them, it's all about the income. Whereas, for the accumulation of wealth, it's all about what you do with your income. Important concepts such as living within your means, budgeting, education, and investing regularly for the future make the difference.
Ben Franklin said: “Beware of little expenses. A small leak will sink a great ship.” According to the Bureau of Labor Statistics, the average family wastes 16% of their yearly income on little leaks. At the risk of hitting close to home, some examples of these little leaks include: gym memberships, wasted food, lottery tickets, a daily $2.95 cup of coffee, credit card interest, fast food, energy waste, the list goes on and on. We need to constantly bear in mind that every purchase has an opportunity cost. Once you spend money on something, it's not available to spend again on something else, like investing for the future. For example, an expense of $2.95 per day on a cup of coffee over 5 years would total $5,384. If that same $2.95 per day were invested at 6%, after five years you would have accumulated $6,206. Every purchase has an opportunity cost. And obviously, the bigger the purchase, the bigger the opportunity cost.
Again, one of my goals is to promote Financial Literacy. There are many other principles and concepts to address. So, we shall return.
As always, please share these discussions with others that you feel would benefit.
Until next time, Cheers!
Jim