Friday, December 2, 2011

Squandering Wealth - One Penny At A Time

When I look back at my career over the last 30 years, I realize I burned through a boatload of money.  Some of it was on big ticket items like cars and boats and houses.  They can use up hundreds of thousands of dollars of your earnings and often return little, other than a toy to play with and a place to sleep.

But what really ate up most of my earnings was paying money for little things that seemed small at the time.  After all, $100 for cable isn't much, right?  And I get to watch all those great TeeVee shows that tell me to buy a big SUV and get a smart phone and a rewards credit card!  It is a propaganda machine that sells you the idea that you NEED to consume.

And pretty soon, if you follow the mass media, you've convinced yourself that various little sins that are frittering away your long-term wealth are really OK, because everyone does them (the TeeVee said so) and they don't cost that much.

But in the long run, it costs you everything.  Just to have a modest retirement, you will likely need to have a million bucks in your 401(k) plan - to have $40,000 a year in income!  And forty grand isn't a lot - it is below the median income for the USA.   You want to live a larger lifestyle than that?  Better save up two million.

And some folks question this and think it is alarmist.  After all, they have $200,000 in their 401(k) and that is a "lot of money" - right?  But they fail to realize that at their current income level of $100,000 a year, that represents two year's salary.  Pretty short retirement!

And yet others will argue that they will just work forever - forgetting also that this may not be an option, as they will likely be laid off or unemployable by age 55 - at anything other than service sector jobs.

So how can you avoid this trap?  How can one possibly save up a million bucks?  It can be done, but it requires sacrifice.  Not big sacrifices like eating Raman noodles all the time, but just figuring out what you really need in life, and how you've probably (if you are a typical American) loaded up your life with lots of subscription services, small charges, and excess fees that are bleeding you to death, slowly.

When I started this blog, two years ago, that pretty much described ME.  I was making the six-figure salary, had lots of cars, boats, houses, toys, and the like.  And every month, a boatload of subscription services were automatically charged to my credit card.  And every month, I paid for lots of little things than, in and of themselves, seemed like small potatoes, but added up to hundreds and thousands of dollars a month.

And as I hit age 50, I realized that my career would not continue to go up, up up.  Our business is slack, as the market is slack, and as the supply of Patent Attorneys has nearly doubled while the demand has remained flat.  For the first time in my life, the idea I might make less money was rapidly becoming a reality.

Suddenly, I realized I was riding a money train.  I had set up a lifestyle which was pretty extravagant, but also required a fire-hose of money to support.  And most of the costs were for little things, like cell phones, internet services, and the like.  Most of these were WANTS and not NEEDS, although I convinced myself they were NEEDS.

What had happened to me what was what had happened to many Americans.  We made more money over time, and over time, we spent more.  Not dropping tons of dough on any one big thing.  But rather bleeding to death  - the death of 1,000 cuts - slowly, over time.

Subscription services were one thing.  Cable TV, telephone, cell phone, VoIP, alarm monitoring, and the like.   Then there were things like housecleaning, lawn service, and the like - which add up quickly.  And of course, that newly mowed lawn needed a sprinkler system, which used up more water.  And each new appliance and toy used up more electricity.

There is not enough space here to tally up all the "stuff" I bought over the last three decades.  Things that seemed so important at one time, and later on in life, seem rather silly.  And they only start to seem silly when you get older and realize you only have a few more years of income-producing left, and then you have to live on your savings.  And suddenly, spending $19.99 a month for alarm-monitoring seems like a silly waste of dough.  Or $100 a month on cable TV a horrendous waste of time and energy.

And perhaps, in this regard, I am shouting into the wind.  A 35-year-old, just promoted to Assistant General Manager and making $100,000 a year, thinks he has made the "big time" at last.  And the idea that you should save and budget seem alien to him.  No, no, now is the time to be looking at a big house and no doubt brochures for luxury SUVs are on his desk.  This is the reward for all that hard work, you know, going to college and such.

We delude ourselves into thinking this - and many of us did.  And perhaps there is no way to overcome human nature - to prevent the squandering of cash in our youth, at the expense of old age.

Perhaps there isn't.  Perhaps there is.  Because as much as I squandered, I saved, when I was younger.  While I could have saved far more, I did at least save some - quite a lot in fact.  I did without the new Lexus, and the look-at-me mini-mansion that many of my peers bought - items that are now being repossessed or foreclosed upon, as we speak.

And how I did this was to turn away from the consumerist society, to stop thinking of $50 or $100 as a trivial amount of money.  To start keeping track of expenses - down to the penny.  And to walk away from come-ons, rewards programs, and other gimmicks which are not real financial planning, but faux financial acumen - distractions from what is really important.

And some folks, reading this blog, still don't get it.  They think that because they have a good income and a little money put aside, that they can rest easy.  They've beaten the game.  They can afford a frequent flyer miles credit card and hundreds of dollars a month in subscription services.  No, no, they will be the ones to beat the new car dealer at his own game - they will win at the casino.  They will make the credit card companies look the fool!

Ahhh, if it were only so.  And we were all young once, and watched TeeVee and thought that we, too, could win at the Casino just like James Bond does.  That we would be the ones to clean up on frequent flyer miles and coupon offers - because that is what all the smart folks do - according to the ads on TeeVee.

It takes a lifetime to learn these hard lessons it seems.  And there is no way to pass these on.

We are all doomed, it seems, to make our own mistakes.  And it seems that few of us will ever own up to them when it all goes horribly wrong.  Must be the government's fault.  Perhaps Obama's.