"There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences."
P. J. O'Rourke
Welcome to The Golden Sense! Once upon a time I knew a rich guy and a poor guy...and guess what? Both were broke. Contradictions don't exist in life, so the rich guy wasn't really rich. He made the kind of money rich people made but in reality he was broke. I knew another "rich" guy once, and guess what? He was actually rich.
Ricky did not have any money saved up. He worked at a restaurant as a waiter and made enough to get by. In total, Ricky made $2,000 a month. Despite Ricky's low pay he owned a nice new Jeep Liberty, iPhone, Mac Air, clothes from Nordstrom, and a new Rolex! Ricky's expenses came in at $2,000 a month. So how did Ricky live? He lived on credit and was one paycheck away from missing a payment. On the surface, his peers thought he was doing well. Really well! Under the surface of this façade Ricky was in bad shape financially. Things were comfortable now, but Ricky found himself in a place where there was no way out and no way to handle an unexpected event. If he lost his job, broke his arm or his car broke down he would be in major financial trouble. Ricky was stressed. He didn't think he would ever get ahead financially and unfortunately he was right to have those concerns.
James was a doctor. His friends called him Doctor J. He made $250k a year and had just finished his residency two years prior. Previously during residency he was only making $40k a year and owed close to $500k in student loans. Since his big salary increase he bought a new house, drove a Mercedes, had a country club membership, and owned all the new Apple products. Dr. J was living big. Along with all the great items he owned, he had great status in the community. Unfortunately for Dr. J, there was a lot of paying off to do. Dr. J thought that since he earned such a high paycheck he could afford all the expensive things in life. Unfortunately, this type of thinking got Dr. J in trouble. Despite his high income, his expenses were just as high and $500k in loans doesn't go away over night. You see, Dr. J wasn't really rich. He could manage the expenses going forward but he was living a stressful life of mandatory work in the future. If his work for some reason stopped, his lifestyle would go from extremely great to extremely bad.
Raymond was in the manufacturing business. He didn't appear rich because he often wore old faded jeans and had beaten up chairs from the 1970's that inhabited his office. When Raymond first started making money he saved money and invested it in financial securities that paid good yields or dividends. During this period of his life Raymond lived within his means. His expenses were well below his income. After a while, these dividends and yields amounted to a second income. Time passed and a third income developed. That's when Raymond went and bought the nice car, the nice house and the new tech toys. At this point it was okay for Raymond to buy these things because he was still living well below his income. Raymond's future was great. He had no financial stress and he could survive any obstacle in the future. He was rich.
There are a few things that separate Raymond from Ricky and James:
- Raymond used his money to buy income producing items while Ricky and James used their money to buy items that depreciated in value or carried additional expenses.
- Raymond has multiple incomes while Ricky and James depend on only one income source.
- Raymond avoided going deep into debt while Ricky and James racked up credit card debt or large mortgage payments.
- Raymond's expenses were well below his income while Ricky and James had expense that equaled their income levels.
- Raymond delayed his gratification while Ricky and James wanted a lavish lifestyle from day one.
Ricky and James now have stressful lives because every day they go to work they are working for yesterday's pleasures. Raymond lives for today and looks forward to tomorrow. Raymond enjoys what he owns because it is already paid for.
It is almost impossible to avoid going into some sort of debt in today's world of high asset prices. The key is to manage debt and not over use it. The person who keeps his expenses below his income is always better off than the person who earns more but spends tomorrow's paycheck.
Over and Out,
T. Norman
Famous Psychological study revisited by the Huffington Post:
A famous Stanford experiment from the late 1960s tested preschool children's ability to resist the lure of instant gratification -- and it yielded some powerful insights about willpower and self-discipline. In the experiment, four-year-olds were put in a room by themselves with a marshmallow on a plate in front of them, and told that they could either eat the treat now, or if they waited until the researcher returned 15 minutes later, they could have two marshmallows.
While most of the children said they'd wait, they often struggled to resist and then gave in, eating the treat before the researcher returned, TIME reports. The children who did manage to hold off for the full 15 minutes generally used avoidance tactics, like turning away or covering their eyes. The implications of the children's behavior were significant: Those who were able to delay gratification were much less likely to be obese, or to have drug addiction or behavioral problems by the time they were teenagers, and were more successful later in life.
Simon Black, www.sovereignman.com
Try this experiment.
Ring up your credit card company at the end of this month. Tell them that you and your spouse can't seem to reach an agreement about how to allocate your monthly budget.
So in the meantime, you have been forced to shut down your household... but you hope to be back on track in a few weeks.
Chances are, they won't take you seriously. Yet for some reason, this has been dismissed as commonplace and benign in the Land of the Free.
Here's a list of quotes we've heard from the telescreen talking heads over the last 24-hours:
"We're still the richest most powerful nation in the world."
"It doesn't matter, the bond market is going up."
"The United States will never default."
The hubris and arrogance here is amazing. And it just goes to show that if you just repeat something over and over again, people will believe it... no matter how absurd.
This is the basic premise behind propaganda. Start with an idea. Inundate the population through constant repetition. And soon it becomes the unquestionable truth.
To suggest that the United States is NOT the richest country in the world, or that the government could default, is tantamount to blasphemy.
It doesn't matter that every objective scrap of evidence points to the inevitable conclusion that the US government is going to have to default on its obligations.
They could default on their obligations to foreign creditors-- China, Japan, the Gulf states-- and risk a total collapse in the dollar's 'value' internationally...
Or they could default on the Federal Reserve, rendering the central bank insolvent, and risk an epic currency crisis...
Or they could default on domestic financial institutions and risk an even bigger banking crisis...
Or they could simply default on their obligations to citizens by curtailing Social Security and debasing the currency.
The only question is-- who gets screwed?
Having this sort of public discussion, however, is considered ludicrous and irrational. The propaganda is so effective that people continue to believe in this fairy tale that America is the Land of the Free and the richest country in the world.
Yet it's this fairy tale that is ludicrous and irrational. Looking at the data objectively, having a candid discussion, and getting your own affairs together to withstand the inevitable fallout-- this is the most rational thing that anyone can do.
References:
www.sovereignman.com
http://www.huffingtonpost.com/2013/10/18/20-psychological-studies-_n_4098779.html
