Tuesday, September 22, 2015

Wealth and Anti-Wealth

When antimatter comes into contact with matter, both are annihilated.  Similarly, anti-wealth will annihilate real wealth.

I mentioned before in another posting that owning expensive things is not a sign of wealth, but often actually anti-wealth.  What did I mean by this?

Simply stated, for us middle-class schmucks, we are conditioned from birth to think of money in terms of how it can be spent, preferably on monthly payments with interest.  We look at "wealth" in terms of a salary - some pittance of money doled out by a benevolent employer.   Actually owning money is not something we are conditioned to comprehend.

Real wealth is not parked in your driveway, nor is it your driveway, your fancy kitchen, or a posh address.  It is not designer clothes, coffees, or cell phones.  Real wealth is money in the bank - money invested and earning more money.

Real wealth is power - power over other people.  Power to control the world.

Anti-wealth is weakness - your dependency on others, on banks, and the whims of credit agencies.

Yet, most of us, early on, choose anti-wealth, as our parents likely chose it, and we were barraged since birth (by the TeeVee) to think of money in terms of anti-wealth.   How much can we afford in payments, based on our salary?  That's how much stuff we go out and buy.   And we kid ourselves that a raise in salary means we are wealthier because we can buy more stuff or more expensive stuff.

Too late in life, most of us realize that anti-wealth is not wealth.  And that by embracing anti-wealth we have annihilated our real wealth.  Many folks who lived "high on the hog" in their 30's and 40's are discovering as they reach retirement age that they have no real wealth, only payment slips and memories of long ago junked cars, boats, and jet skis.

And therein lies the rub.  Our parents' generation, who received defined-benefit pensions, were not really hurt by anti-wealth, as they were assured a steady paycheck throughout their lives.  So long as they could make the payments, they were doing OK.   Of course, some of them, such as my Dad, ended up being forced out early and forced to confront that their real wealth was far less than they thought.

Our generation - the 401(k) generation - has to accumulate real wealth if we don't want to starve when we retire.  And by "retire" I mean something that could happen to anyone as early as age 50.   And a lot of folks reach this age, are forced out of their tech firm, law firm, or other business, and then wonder what they are going to do.  They assumed that a high paycheck would go on forever.  A poor assumption given the track record of so many that came before.

So how can you avoid this trap?   Well, if you are younger, you can eschew anti-wealth and embrace real wealth.  This doesn't mean having to live like a monk, but just disciplining yourself to save some money, to invest, and live below your income level not up to it.   Buy less car than you want.  Buy a smaller house than you want.  Spend less than you'd like to.   Spend only what you need to.  It's like dieting - you might be a little hungry all the time, but in the long run, you feel better and feel better about yourself.

I learned about anti-wealth pretty late in life - around age 45.  I still managed to preserve most of my wealth from annihilation.  But anti-wealth probably took away about half my real wealth over time.   And it was not that I needed to live like a pauper.  I could have done with one less car (five, instead of six) or maybe a secondhand boat instead of a brand-new one (which turned out to be more unreliable than a used one!).  I could have bought a smaller vacation home and rented it out when I wasn't using it.   I could have done a lot of things, in retrospect, that would have preserved real wealth, while not really changing my lifestyle very much.

Sadly, it seems that most of us have to go through this.  We make a little money in our 20's and buy a new car.  We want to drink deep of the well of life and enjoy all the things our kill-joy parents wisely denied us.   Some of us figure this out early.  Some of us, like me, wise up over time after seeing money go up the chimney.  Others never figure it out, but instead blame the government or Obama for their woes, when everything goes horribly wrong.

Anti-wealth.  It is something to think about.  Particularly before you sign yet another loan agreement.