For Whom Am I Working?

Good Debt, Bad Debt: Knowing the Difference Can Save Your Financial Life
by Jon Hanson

(Page 6 of 7)

Many people work hard to have luxuries - only to become slaves to those luxuries. In The Art of Money Getting, P. T. Barnum wrote, "Debt robs a man of his self-respect and makes him almost despise himself." You may well ask, Do I have my possessions - or do they have me? After a few years of "prosperity," this is the question I asked myself.

No matter how low a wage you are earning, success is within your reach. Many people refuse to believe this, since they are already living at the financial edge. You probably have everything you need; you may just be using your resources ineffectively.

Some people think that success will start only when they begin to earn a certain dollar amount or when some future event "saves" them. The problem with such thinking is, if you wait to start you may carry forward such poor financial habits that even when - or, more to the point, if - this dollar amount or event happens, it will not be enough to overcome the poor habits you acquired while waiting. The notion "I don't make enough" is more popular than the supremely accurate notion "I have poor spending habits."

For most families or individuals, massive changes aren't needed. Usually just a reallocation of your present income can start you on the path to independence. It is usually your way of thinking and of handling the war of thoughts and desires within you that needs rehabilitation.

A few years ago I wrote in my journal, "Many have a form of wealth but deny its power through lack of discipline and unbridled desire." Your form of wealth is the income you likely have if you are reading this book. Many people never give thought to the right ordering of finances and setting aside a proper portion of their income to offset their advancing age. Your present income can make you wealthy if you are willing to live at 85 to 90 percent of that income during the estate-building years. It is uncomfortable to consider that wealth could have already been acquired from what has long since passed through our hands.

"Many have a form of wealth but deny its power through lack of discipline and unbridled desire."

Hand-to-Mouth

Those choosing to live hand-to-mouth will always be a financially inferior class compared with those who take the time to plan, save, organize, and invest. Some of us compound the problem by choosing to live not only financially hand-to-mouth but also intellectually and spiritually hand-to- mouth, never building a reserve of knowledge and faith for use beyond the immediate moment. To be sure, your intellectual and spiritual development may be nurtured independently of your finances, but the most successful people build all three simultaneously. As an analogy, think of how a cable or rope is made, with three strands of the cable representing your financial, intellectual, and spiritual sides. When all three of these are woven together, they produce a cord that is not easily broken.

In Thrift, Samuel Smiles wrote, "Economy is not a natural instinct, but the growth of experience, example, and forethought. It is also the result of education and intelligence. It is only when men become wise and thoughtful that they become frugal. Hence the best way of making men and women provident is to make them wise." If I connect Smiles's recommendation of economy and wisdom together, I come up with what I call the Econowise - people seeking both economy and wisdom.

The two main spending styles are Consumerati and Econowise. Consumerati spend all the money they have; they are the overspenders. Many Consumerati adopt a consumer entitlement mentality, eventually believing they not only need but also deserve everything they want. The Consumerati avoid the three Ds of discipline, deferral, and discernment while embracing the three Is: indifference, immediacy, and ignorance. I do not mean by ignorance that the Consumerati are literally ignorant. I mean that by design they choose to be ignorant in the area of personal finance. Just by being unaware, you are ignorant. It is an ignorance of information, not a lack of intelligence. I am urging you to avoid willful ignorance.

The Econowise on the other hand plan for life's demands; they seek economy and wisdom. The question the Econowise ask at the beginning of every spending situation is "Does this take me nearer to or farther from my goals?" A constant training in the Econowise habits is desirable. Make it part of your internal dialog.

The Econowise of course embrace discipline, deferral, and discernment. We could further distinguish between these two types as those who spend all or more than they make (spendthrift/Consumerati) versus those who spend less than they make (thrifty/Econowise). Their cousins are the Insatiable and the Prudent, respectively.

Cultural, social, or economic forces do not create criminals. They are criminals as a result of their own choices. So, too, debtors are created by their own choices just as financially independent people are created by their own choices.

Did You Know?

If you have worked for many years and have little or nothing to show for your efforts, it is because either you don't know the fundamentals of spending or you choose to ignore them. It may be a matter of financial immaturity - or perhaps you have just never been made aware of the fundamentals. Financial immaturity is the major reason that people do not plan for the future. Awareness is the easy part. That's the good news! The ongoing work of leading the life of the Econowise involves awareness of the debt effects, monitoring your burn rate, having a spending plan in place, and having a written plan for an endgame. For the Econowise, the endgame begins when passive income exceeds their needs and they are free to do as they wish. Please, don't misunderstand. I am not against work - just against forced work due to being a slave to one's desires.

Your awareness will control your possibilities. Whatever one person can do, another can do. This sentiment was a staple of Victorian writing. Many of the financial books from that period are full of examples of successes to serve as models. Today most business writers, perhaps reflecting the market, concentrate on quick fixes rather than examples stretching over several years.

Plan, Plan, Plan

It is up to you to plan, study, and seek a wise and prudent life. If you don't know how to become financially competent, you must ask until you do know. What a terrible cost silence imposes on ignorance. A Chinese proverb says, "He who asks a question is a fool for five minutes. He who does not ask is a fool forever."

Awareness can only create a perception of possibilities. You must still muster the maturity to take action. Being full of awareness may make you interesting to talk with - but you could still be a terrible example to follow. You must also choose to be free. The ever-quotable Oscar Wilde said, "It's better to have a permanent income than to be fascinating."

Some people never realize that they can redirect their present incomes and become wealthy. They buy into the popular culture and ignore the wisdom of the ages. You are responsible for your choices. Recast your habits and you will change your life permanently. You may change temporarily by sheer force of will, but it will only be temporary. Habits, in the long run, will control your destiny. Let's examine how education and culture may lead you to make poor choices and how you can avoid them.

Copyright © 2004 Jon Hanson. All rights reserved. This excerpt, or any parts thereof, may not be reproduced without permission.

About the Author

Jon Hanson lectures to audiences of all sizes on personal finance topics. A twenty-four-year veteran of the real estate business, he is now a full-time writer and public speaker.