Tuesday, January 11, 2011

Excuses People Make....

This is a no whining zone.  If you want to get out of debt and become wealthy, yes, it takes hard work and self-sacrifice.  Too many Americans "want it all"  and then wonder why they are in such financial difficulty - and then want to blame others (minorities, immigrants, politicians, bankers) for their woes.  Take that shit elsewhere, please!  Chances are, your financial problems are entirely of your own doing.  Fixing them requires that you seriously examine your own actions, motives, and take full responsibility for your actions.  Oh, wait, what am I saying?  This is America!  Everyone is a victim, right?

In response to a recent blog posting about Net Worth, I received this comment which reflects the attitude of some people about savings:
"The average wage slave socking away $100 a week and retiring a millionaire seems a lot less likely now, without even factoring in the risk of being on the losing end of downturns."
Unfortunately, this sounds a lot to me like the whining loser-mentality that pervades our society these days.   People think that since they can't be a millionaire after saving for, say, two to three weeks, they might as well go out and blow it all on a Jet-Ski.  And people use the "current economic crises" as an excuse to engage in lazy thinking - that the end of the world is nigh.

But that is just loser talk - people who want to self-justify their poor financial choices by looking for poor normative cues that what they are doing is "OK" - and of course, the television is full of reassurance that a mountain of debt and a pile of depreciating metal in your yard is the American Dream.

In a way, it is like those folks who patrol nutrition and weight loss boards and decry anyone who even suggests good eating habits as "Nutrition Nazis" who are trying to "tell everyone what they should eat!"

And I have seen similar people patrolling monetary blogs and boards similarly trying to shout down the voices of financial reason - that somehow saving money is for chumps and that anyone who isn't over-consuming to the Nth degree is unAmerican.

Sorry, Charley, no sale.  I can't validate your poor lifestyle choices.

To begin with, if a young person at age 20 put aside $100 a week (a paltry $5200 a year), at 5% interest, after 45 years (age 65) they would have $871,962.85 in the bank.  Assuming they bought even a modest home and paid off their mortgage over that period of time, they clearly would be millionaires.  Well over millionaires, in fact.  It is not only not "less likely" it is quite likely.

For example, suppose they bought a modest $150,000 home today.  Even at only 2% annual appreciation (which is far below the long-term national average) after 45 years, their home will more than double in value, to $365,678.13.  Add in the $871,962.85in savings, and they have $1,237,640.98 in net worth.

Now, suppose they sell their home, move to Florida and buy a Park Model for $50,000, that leaves them well over a million dollars in the bank to retire on - in addition to Social Security.

Anyone making a middle-class income in this country can be a millionaire - if they chose to do so.  Few chose to do so.

"Oh," but you say, "What about the economic downturn?  Everything has changed!  Housing prices are down!  The stock market is down!  All is lost!  There is no point in saving!"

Nice try again, but no sale to bad goods.  Stock markets go up - and go down - and go back up.  You should understand this before investing.  And home prices go up and down, and if you can't spot a bubble for what it is, too bad for you.  Sorry that is harsh, but there you have it.

Just because some people made foolish financial choices does not mean that the economy is permanently damaged or the world is coming to an end.  And again, that is harsh, but the rest of us can't decide to abandon Democracy and our Country just because some jack-ass over-mortgaged himself to get granite counter-tops and now blames Obama.  We are not going to let our country go down because of a few weak-thinking individuals.

Housing prices will remain flat for the next 5-10 years, this is true - and I have commented on this before.  There may be some significant bargains out there right now or in the next 3-4 years, for the astute investor (this is how I made a lot of dough during the last "crises" in the 1990's).  But over time, prices will edge up again, following the 2-3% normal rate of appreciation that historically home prices have enjoyed.

And stock prices - well, they have already recovered from the "debacle" of 2009 and are edging slightly higher.  Given the astounding rates of return over the decade prior to 2009, the overall rate of return - even taking into account the various recessions and setbacks of the last 30 years  - is well above 5%.

Now of course, some might say, "Well, that is all very well and fine for the long-term investor, but I am near retirement age and lost it all when my stocks tanked and I panicked and sold them all and bought bonds and of course my over-mortgaged house is upside-down!"

Well, again, as I have noted time and time again in this blog, as you approach retirement age, you need to put more and more investments into safe harbors, such as bonds, CDs, and other investments that, barring a collapse of the government, will still be there for you when you retire (if the government collapses, forget investments, even Gold, you'll need bullets, so just forget that scenario).  A 60-year-old should not be in the stock market.

And similarly, a 60-year-old should not have a mortgage, either.  A 40-year working life is more than sufficient to pay off a 30-year mortgage.  By the time you retire, your home should be paid for for a number of reasons.  First, you don't want to have that monthly payment to make on a reduced income.  Second, if your home is paid off, you don't have to worry about these "upside down" scenarios.  Third, many people, if not most, these days, get laid off in their 50's, long before the coveted age 65 retirement.  Having an onerous mortgage payment when you are 55 an unemployed is never a good thing.

Now it is tempting to listen to the nay-sayers and the doom-and-gloom predictors and feel sorry for yourself.  There is some sick part of human nature that tends to want to pander to this emotion - but it is Emotional Thinking at its worst!

And yes, such thinking is often the hallmark of depression.  Rejecting such types of thinking is one way to get out of depression.  Depressed people think depressing thoughts, which in turn, makes them depressed.  You cannot succeed financially if your world-view is pessimistic.  Just as you cannot get your financial house in order if your brain is out-of-order.

Planning on the end of the world is like planning on winning the lottery (and news programs are full of helpful information on what to do if the latter should happen to you!).  But the reality is, your life will likely be unremarkable and you will eventually end up older and retiring.  And if you use End Times theology or the Lottery as your 401(k), well, life will surely suck in short order.

And I know all this because during my whole life there have been times when people have said the same thing, whether it was during the riots of 1968, the gas crises of 1973, 1977 or 1981, or the economic downturn of 1979 or the "Black Friday" of 1987, the housing busts of 1989 and 2009, and now the "economic meltdown" of 2009.

And in every case, society soldiers on, markets recover, and things continue, largely as before.  Using the current economic situation as an excuse for poor financial planning is not a very wise thing to do.

On the other hand, if one is clever, the current economic situation can be a good investment opportunity - and a good learning opportunity as well.

You do have choices.  You can save money, pay down debt, and become wealthier.  And you can become a millionaire.  But even if you don't, having more money is far better than having less.  And being broke sucks most of all.   And for our generation, who has to retire on their savings we don't have much of a choice, do we?  Defined pension plans are largely dead, unless you work for the gub-ment.