Tuesday, February 14, 2012

Dreams of Avarice

Mitt Romney claims that we ordinary folk someday hope to 'make it big'.  Without some sort of concrete plan, though, making it big is just a pipe dream.

The other day in Florida, Mitt Romney made an interesting argument about "class warfare."  He said that from the Democratic point of view, people who drive through a rich neighborhood and see all the fancy houses are resentful of other people's success.  But from his (Republican) point of view, the poor folks who drive through those neighborhoods think, "Hey, those folks are successful, and some day, I'd like to have a shot at that as well!"

Or something to that effect.  His view of the middle-class and the poor is that we are strivers who all want to be like him someday, run a Vulture Capital operation like Bain, and wear funny Mormon underwear.

Scary thing is, he's right.  Well, except the underwear part.  Many folks who are middle-class or poor, secretly harbor dreams of avarice - that someday, they will "strike it rich" and become as wealthy as Mormons.  How this is supposed to happen, of course, is a little vague.

You see this all the time in the Media, from way back - even the old movies of the early days had story lines where folks dreamed about striking it rich.  Heck, this even goes back to Dickens.  But at the dawn of the modern era, we saw this story line repeated again and again.  For example, in the Honeymooners, where Ralph Cramden tried one "get-rich-quick" scheme after another, to no avail.  The idea that he could save his salary as a bus driver (and have a very cushy pension) and invest it and end up comfortable after 30 years of work, was, of course, not on the table.  It was fabulous wealth, or abject poverty, and nothing in-between.  Sort of the Casino Mentality at work.

And that is a real problem for the average working American.  We all have vague ideas about being "rich" someday, but don't really have a clue as to how to execute these ideas.  No clue whatsoever.  But in our heart of hearts, we all think that someday we will get a lucky break and come into money.  Someday, but never today.

The reality is, sudden riches ain't likely gonna happen to any of us.  It just doesn't work that way. And even a comfortable amount of wealth ain't gonna happen unless you have a plan from the get-go.

When I was a youth, I sort of harbored these fantasies of wealth.  I was working in the heavy machinery laboratories at United Technologies Carrier and making a good salary and going to night school at Syracuse to complete my Electrical Engineering degree (UTX paid my tuition, too. Thanks UTX! Their stock has been doing pretty good as well, and paying a dividend).

I wasn't saving money at the time - in fact, I spent every penny and borrowed more.  But, I figured, I was young and life was long, and "someday" I would get my degree, get a job as an Engineer and be making the fantastic salary of $30,000 a year - which was like, well, rich beyond my dreams!  Once that happened, I would never worry about money for the rest of my life, right?

Well, the reality was (and is) that Engineers don't make a lot of money, really, and the big demand for EE's in Silicon Valley was for people with semiconductor skills, not control theory skills, and while I got job offers from Air Conditioning companies, the future wasn't so bright that I needed to wear shades.  $30,000, as it turns out, wasn't a lot of money.

So I got into the Patent Business.  Back then, they were hiring like mad, and before long I was making $50,000 a year, which was a ton of money, right?  Well, it would be, if I didn't spend it as fast as I made it.  And I was just as a Law Clerk.  I would graduate from school soon and be making the fabled $100,000 a year - and THAT was surely a lot of money and I would be rich beyond my dreams!  (Some school teachers make that much these days, it is NOT a lot of money, particularly if you spend it all).

And so on and so on.  Success and riches were always something that would happen "eventually" and I failed to realize that all during this process I was in fact making good money - at each level I was at - but failing to save any of it.

If I could have spent, say, 10% less than I did, and end up with a surplus left over, instead of spending MORE than I made and borrowing more and more - I could have accumulated a lot of money in not a very long period of time.  Perhaps not Mormon-rich, but well off nevertheless.  But like so many Americans, it seemed that we had to have "things" in our lives, and buying a lot of stuff seemed more important than saving.

The reality of the story arc of your life - and there is a story arc, with a beginning, middle, and an END - is that you are likely to make some good money over time, and maybe peak out at age 50 or so, and then decline.  You may find yourself LAID OFF at age 55, as your health insurance costs skyrocket and your job skills become obsolete and your salary is not competitive with younger people.

That's the reality.  No winning the lottery.  No inventing the "next big thing."  No winning "America's Idol."  No winning big at the track, the slots, or whatever.  No inheritance from a long-lost Uncle.  You life is pretty much predictable, and follows a pattern of about 330 Million other people in this country.  Maybe 3 million end up really rich.  You and I can best hope for middle class.

This is not such a bad thing, really, though.  Compared to the lives of most people on the planet, we are rich and not only that, have the chance to be "wealthy" in a very real way.  Our life expectancies are huge, compared to most people on the planet - and yet most of us squander this on bad food and no exercise.  Our incomes, on a planetary scale, are huge as well - but again most of us squander this on poor bargains and bad deals.  We buy new cars in series, and pay 3-5 times as much as we need to, to own a car.  We spend money on electronic junk and clothes we don't need.  And then we buy huge houses to hold all our precious "stuff" - convinced that having things is better than having money.

Our recent housing meltdown is a case in point.  A lot of people got into the housing market, hoping to "buy and flip" expensive homes and make a lot of money in a short period of time.  And like Ralph Cramden, they got creamed.  But the story doesn't end there.  These same folks are now "investing" in Gold and hoping to get rich.  But that doesn't look to be in the cards.  Or they day-trade stocks, hoping to get rich.  Or they buy "dot com" IPO stocks hoping to get rich.  They watch the financial channels and listen to the financial gurus, looking for the clues to wealth and fortune.  There has to be a trick, after all!

And yet, the trick is that there is no trick.   Real wealth is already in their hands, they just cannot see it.  They would rather have a new iPhone than $1500 a year more in the bank.  They rather would have designer coffees than $1800 a year in the bank.  They would rather lease a new car than put $25,000 in the bank.

I am fortunate that I saw what I was doing and stopped it before it was too late.  I managed to make good money and saved some of it.  But I didn't save as much as I could.  And I squandered a lot on things that really didn't pan out the way I thought they would.  I could have had the same amount of fun, for a lot less money, but chose other paths instead.

Eventually, you reach this point in life - where the "game is over" and you have to think seriously about retirement and your remaining years on the planet.  And for most folks, this is a decision that is thrust upon them suddenly, not one that occurs after years of careful planning.  Most folks reach retirement age sooner than expected, and then try to put together a retirement plan from the wreckage of their lives - whatever little savings they have, an inheritance perhaps (better be nice to Mom!), sale of a home with equity, and hopefully, Social Security.

Often, this ends up a nightmare scenario, particularly today.  There are no savings.  The home has no equity (and has a huge mortgage), and there is no inheritance - or greedy siblings have already picked Mom and Dad clean.  And Social Security?  Our Mormon friend promises to put a "needs test" on that!   He really doesn't care about the very poor, does he?

You CAN get rich in America, but not though lottery tickets or vague plans of avarice.  And cutting coupons or getting cash-back bonus miles ain't the way, either.  You cannot eat your way to slimness.  You cannot spend your way to wealth.

You can, however, decide you don't need a lot of junk in your life and put that money aside to build real wealth.  The earlier in life you decide to do this, the better off you will be down the road, as wealth accumulates and multiplies thanks to the miracle of compound interest.  Just learn to live within your means, stop borrowing money, and save a little bit.  It is not a huge sacrifice, either, just a 5-10% adjustment in your life.

Yet so few of us do it!