How We Lie To Ourselves About Money
Part 1: “As Soon As …”
“You get the best out of others when you give the best of yourself.” – Harry Firestone
Most of us rationalize why we can’t get our finances together right now. Many Americans prolong these excuses during their entire working careers. Here are three lies you must stop telling yourself in order to build a solid financial foundation.
Consider these statistics. The average American family currently saves less than 6% of their take-home pay. They donate less than 2% of their income to charity. They have an astonishing average credit card debt of $8,000. If they saved and invested just the interest of what they pay in credit card debt at normal market returns of 10%, they would add a million dollars over a 44-year working career.
But the average American family runs their financial affairs in such a way that if they were a publicly traded company, their stock price would plummet, the company would go bankrupt and the members of their accounting department would be taken away in handcuffs.
You are called to live your life in a radically different way than the average American. You are called to a millionaire mindset. Not because being a millionaire is the goal, but because the typical millionaire next door lives a simple lifestyle, in order to build and manage real wealth.
Whatever you decide to do with the wealth you build will be better than living hand-to-mouth. Start a business and employ people. Buy rental property and help the housing market. Invest in the stock market and own a piece of global corporations. Or save the money and eschew the need for government charity in your retirement.
Some families live simply so that others might simply live, donating from their excess to worthwhile charities. But what they don’t do is continue to live on the edge and postpone getting their financial house in order by self-defeating lies.
The first lie comes in this form: “I will get my finances in order as soon as . . . “ You can’t postpone financial faithfulness any more than you can postpone marital faithfulness. Faithfulness is simply a long time in the same direction. Your habits set your financial DNA, and habits are simply habit-forming.
Many people support this first lie with the idea that life comes in three stages: learning, working and recreation. They wrongly believe that until they are toward the middle or end of the working stage of life, they don’t need to worry about finances.
There is a time value to money. At 10% average market returns, your investments will double every seven years. [Of course, in my line of work, I have to be careful to add that I can’t make you any promises about market yields, but for the sake of us doing some quick, hypothetical math together…] Savings and investing a dollar when you are 20 is worth the same as $2 when you are 27. It is worth as much as $4 when you are 34, $8 when you are 41, $16 when you are 48, $32 at 55, $64 at 62 and $128 at 69. Saving a single dollar at age 20 is worth $100 in retirement!
And saving for the next seven years is worth more than starting in the eighth year and continuing for the rest of your life. After saving for seven years, your portfolio, on average, will be earning more than you are contributing. Put another way, for every seven years you delay beginning to save and invest, you cut in half your ultimate retirement portfolio. In future articles, we will talk about what I call a Private Reserve Strategy where you have these funds grow tax free.
In a future installment, I’ll discuss the second big lie.
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