Wednesday, April 15, 2015

Finite Resources, Infinite Possibilities

Most of us All of us will only earn a finite amount of money over our lifetimes.  What we do with that money determines our outcome, as how much we make is limited.

As I noted in another posting, the amount of money you will earn in your lifetime is a finite amount, and can be calculated to a pretty good degree of certainty, based on your educational level and your profession.   If you make and average of  $50,000 a year, over a 45-year working life, you will make over two million dollars by the time you retire.

Yea, that is a lot of money, isn't it?   But most of us don't see ourselves as potential millionaires.

The point is, you really can't change this too much, even if you tried.   If you are a truck driver, how much you make as a truck driver isn't going to change much, unless you have some real ambition and decide to start a trucking company.  Other than that, what you make is what you make.   You have no real control over that.
How you spend the money you make, however, will determine how "rich" you become in life.

It is funny, but most people think the opposite.  They are certain that there is some "trick" or "system" to becoming wealthy, as it seems that some folks have lots of money and appear to do no work at all.   And since most people are mystified as to how money works, it does seem like there must be some "magic" involved to becoming rich.

Take our truck driver example.  Tommy Trucker graduates from high school, takes a course in truck driving and gets his CDL (Commercial Driver's License) and goes to work for a local trucking company.  The pay is low and since he is young, he is a huge risk to the company and its insurance policy.

He is young and reckless and gets some speeding tickets and risks losing his job and maybe even his license.  For many young folks, the story ends there.  He loses his license or is uninsurable (or unhirable) and that career quickly ends.  Maybe a drug test seals the deal.  Some bad choices mean "game over" at an early age.

But, let's assume he avoids these pitfalls and keeps his job.   After many years of working grunt jobs, he manages to save up a little bit of dough and gets a loan from the bank to buy a truck of his own.   Now again, there are more pitfalls here.  If Tommy stupidly blew all his money on new cars and consumer financing, he would not have been able to get that loan from the bank, as his credit rating would be shot.

And again, for many young folks, the story ends there.   Rather than save money to buy their own rig, many end up blowing every paycheck - and borrowing a few dollars more - to own "things" like big televisions, a motorcycle, a bass boat, a new Camaro, and other paid-on-time junk cluttering up the yard in front of the trailer.  They grouse about how unfair it all is, as they have to work a shitty job for a company that "is all fucked up" and they can never afford a rig of their own.   But they chose to have "stuff" now, rather than wealth.

So, assuming he avoids all of those traps - the financial ones, the drinking ones, the drug ones, the speeding ones - he buys his own rig.   Well, it doesn't end there.    Being an owner/operator is no easy deal, and in today's market, the margins get thinner and thinner.   But Tommy likes his new truck, and he spends every last spare penny on new chrome accessories and beehive lights so that his truck is "all tricked out" and the most bad-ass thing on the road.   He fell into another trap.   And if you see the rolling pinball machines going down the road these days, you can see a lot of truckers fall for this sort of thing - although with profits the way they are, this sort of thing is less popular than it used to be.

But assuming Tommy didn't fall for that trap, maybe he could save up some money and think about buying a second truck.   He could then hire one of his buddies (the one with all the motorized toys parked in front of their trailer, up to his eyeballs in debt) to drive it for him.  He doesn't make a lot of money this way, but it does put a few chickens in the pot.   But before long, he can buy yet another rig, and hire yet another driver.   Twenty years go buy, and he is running a trucking company and making quite a sizeable sum for himself.

Or, maybe he takes this excess income and saves it and invests it.  Same deal, different day.  By saving money, he ends up being wealthier.  By investing it in something (his own rig, his own company, or just a mutual fund) he makes his money multiply.  

Was it easy?  No.  Was it hard work?  Yes.   Were there a lot of traps to fall into along the way?  You Bet!   And quite frankly, most of us don't have the strength to avoid all of these traps.   Working hard is hard work, and saving money is no "fun" at all.   It is tempting - very tempting - to just "give up" and say "to hell with trying to get ahead" and then drown your sorrows in a sea of consumer goods, beer, and pot. And I know this from experience.

And it is not hard to see why people get discouraged and do this.  They can't see the big picture.   Long-term rewards take, well, a long time.   It seems like it is better to have it all now than to wait for some far-off reward that might never come.   We kid ourselves that "well, we could die tomorrow!" and then miss out on all the precious bling life has to offer.  And seriously, I hear this sentiment echoed all the time on online forums.  Why save for tomorrow when you could die today?

Problem is, the odds of us "dying tomorrow" are pretty slim.   The sad fact is, we are all likely to live for some time, and living old and broke really sucks.   Not only that, living under the constant fear of debt, losing one's job, and being dependent on others just sucks as well.   And no, a bad-ass big-screen television doesn't begin to compensate for that kind of angst.  The bling just ain't worth it.

But moreover, the decision to give up and drown in a sea of consumer goods is a conscious choice we make.   And most make it - and that is the really great thing.   Why?  Because it means that you really don't have a lot of competition if you decide to get ahead in the world.   It is not a dog-eat-dog world out there.  Most people are cats, and prefer to sleep all day long.   You pretty much are competing with yourself and your own urges to give up and give in.  Very rarely is it someone else holding you back, only yourself.

I use the example of a truck driver here, but the idea could apply to anyone.   If you are an average middle-class person in the United States, you will earn millions of dollars over your lifetime.  Millions.   How much of it you decide to keep and invest is up to you.   Most folks spend all of those millions, and they spend it on stuff that really doesn't stick around for long.   And a big chunk of what they spend is on interest payments to lenders so that they can have this stuff now and pay for it long after it goes into a dumpster.

It isn't easy to get ahead - otherwise everyone would be doing it.   It is hard, and it involves a lot of hard choices.  Sadly, most of us look for easy answers, and then blame the powers-that-be when they don't pan out. 

That, is not an answer.