One of the most striking images from Tolkien’s stories is of the dragon Smaug curled up on top of his massive treasure hoard. How far did his riches get him? Some real lessons from fantastic fiction.
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Remember Rich Uncle Pennybags? He’s the mascot from Monopoly. Top hat, monocle, sacks of cash. As kids, he might have been the cartoonish dream for some of us, the ultimate image of what “rich” looks like.
Obviously the reality is different, and our dreams mature as we do. Clients, in our conversations with you, it doesn’t seem like his life or image is the one you’re pining for.
But there is one surprising realization about the life of the “rich”: it is usually much, much less expensive to be rich than to be poor.
Why? Having money enables us to live more efficiently and avoid many painful financial pitfalls.
To begin with, credit may sound like a bargain—after all, you’re getting more money now than you otherwise could spend! But there really isn’t any such thing as “cheap credit.” If you are able to lay down cash for major purchases, you don’t just save on fees and interest: you may even be able to negotiate a better price.
If you are funding large items on a credit card, you are likely to wind up paying many times what they are worth. If you find yourself in a spot where you need to turn to high-risk credit in the form of payday loans, things get even worse.
There are other ways that having money allows you to stretch your resources out, too. Buying quality merchandise may take more money up front, but the alternative is buying shoddy products: if you find cheap furniture that falls apart every year or two, you’re still paying to replace pieces more often. You may save money in the long run by paying more up front. (Of course, care must still be taken to select your purchases carefully: higher cost does not always correlate to higher quality!)
Also, when you have a life of plenty you have the luxury of being able to shop around and wait for a better price. The rich get to be rich in time, too. Be a little choosy, not cheap.
These habits are ones that all of us can use to help us build and maintain our own wealth.
The wonderful conundrum that some have discovered is this: the less you spend, the more wealth you accrue; the more wealth you have, the less you need to spend.
Clients, write or call when you’d like to talk about what this means for you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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Play the audio version of this post below:
The word stagnant is an adjective used to describe things that are motionless, lifeless, lethargic, slow-moving, inactive or static, like water with no flow to it.
If these kinds of words also describe financial accounts you own, this may be a good time to get things moving. A dormant old 401(k) or too much cash parked in the bank could be in that category. Investments or advisors you don’t understand might be another sign.
A wise person once said that every past market crash looks like an opportunity. We do not have to wait until after the inevitable rebound to treat the current turmoil as an opportunity. It could be a great time to do something about the stagnant pieces of your financial puzzle. Or not. No guarantees.
(We address our communications to clients, but know that we have many eavesdroppers. To them we say, our approach is not for everyone. You can learn a lot about it here at 228Main.com, or in our Twitter or LinkedIn feeds.)
You may need to clean house in your finances or review your plans and planning in light of new information. If we might be able to help, put us to work. It’s what we do.
Clients, if you would like to talk about this or anything else, please email us or call.
When children think about rich people the mental image might be something like Rich Uncle Pennybags from the Monopoly game: a monocled fat cat in a top hat with bulging sacks of money.
Obviously, the reality is much different. As we mature we typically develop a more realistic picture, but there is one surprising realization: it is usually much, much cheaper to be rich than to be poor. Having money enables us to live more cheaply and avoid many painful financial pitfalls.
To begin with, paying cash is often cheaper than paying with credit. If you are able to lay down cash for major purchase such as vehicles or even houses instead of having to borrow, you don’t just save on fees and interest, you may even be able to negotiate a better price. If you are funding large items on a credit card, you are likely to wind up paying many times what they are worth. If you are hard up enough that you need to turn to high risk credit in the form of payday loans, things get even worse.
There are other ways that having money allows you to stretch your money out, too. Buying quality merchandise may take more money up front, but if the alternative is buying shoddy products need to be replaced more often, you may save money in the long run by paying more up front. (Of course, care must still be taken to select your purchases carefully: higher cost does not always correlate to higher quality!)
Also, when you have a life of plenty you have the luxury of being able to shop around and wait for a better price. If you have two of everything, it is not an emergency if one breaks or gets used up. Without that surplus, you may find yourself having to go out and buy a replacement whether you like the price or not.
These habits, paying cash and shopping carefully and not being in a hurry to spend, are ones that all of us can use to help us build and maintain our own wealth.
The wonderful conundrum that some have discovered is this: the less you spend, the more wealth you accrue; the more wealth you have, the less you need to spend. Please call or write if you would like perspective or conversation about your situation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
For 2017 we have resolved to do a better job of listening to our clients and developing plans that suit their needs and desires. We are ready!
Our new short presentation, ‘A Money Plan that Fits You,’ approaches the topic in a step by step way. It can help you understand the three main buckets or portfolio layers that we offer:
• Our core long term investments are intended to provide total returns over the long term. We research opportunities and threats to choose where and how to invest. Inherently and unavoidably, these investments fluctuate in value. That is part of good stewardship.
• Many people need or want a certain amount of ‘money in the bank.’ With this in place, they can tolerate some volatility in the rest of their plan.
• In between ‘money in the bank’ and market-sensitive investments, some people desire a balanced or middle of the road approach. This might produce medium risks and medium returns.
Your circumstances and attitudes are different from those of the next person. By using varying mixes of these three portfolio elements, we can develop a Money Plan that fits you.
Of course we do the arithmetic on your planning issues. Having a portfolio that is easy to live with may or may not get you where you want to go; we won’t kid you about the numbers. But we never forget whose money it is—yours—so decisions on how to invest properly belong to you.
We are excited (as always) about the new year and the improvements we are making. If you would like to see ‘A Money Plan that Fits You’ simply ask. We will send you the short presentation in both PDF and slideshow format. It only takes a few minutes to view.
As always, call or write for a longer discussion, or how our work might apply to your situation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
No strategy assures success or protects against loss.
The Federal Reserve provides us with a quarterly report of household net worth. The latest number is $89 trillion, up 59% from the financial crisis year of 2008. I don’t care who you are, that’s a lot of wealth—and a nice increase.
The distribution of our wealth from person to person is the subject of some political debate, which we will leave to the politicians. It always has made sense to us to focus on the things within our control; let’s see what we can learn from the numbers.
Our $111 trillion of assets includes homes, pensions, stock, money in the bank, mutual funds, small business ownership, and bonds.
We owe $22 trillion, most in the form of mortgage debt but also including consumer debt like auto loans and credit cards.
Net worth is simply the value of our assets minus our liabilities, or what we own minus what we owe. $111 trillion minus $22 trillion is our $89 trillion in net worth.
Here are the pertinent points, as we see them:
1. Having wealth in different forms is a good thing, a form of diversification. We the people have money in the bank, different kinds of investments, homes and businesses.
2. Debt can make sense when it helps us own assets of enduring value that we can afford to pay for over time. $22 trillion is a lot of debt, but it helps us to own $111 trillion worth of homes and businesses and other assets.
3. Since debt or liabilities are subtracted from assets to determine our net worth, it makes sense to minimize debt over time. One who pays off a car loan and then keeps putting the payment amount in savings each month might get by with a smaller loan the next time a vehicle is purchased.
4. Because assets are the starting point for determining net worth, one should seek to invest effectively for growth and income over time. Money does not grow on trees, but it may grow over time.
Our $89 trillion net worth is a very large amount of wealth for us as a society. The decisions we make play a big role in determining whether or not we each get our piece of the pie. We have written about Four Habits for Financial Success which might help, and we encourage you to call or email if we can be of service.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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