Leading quality lives includes looking after our financial futures. Although all of us desire to be independent of financial constraints, none of us is completely free. We dream of following our passions, but we are constantly reminded that we must support ourselves and our families. Time ticks incessantly onward, and those who get behind financially find it difficult to catch up.
Much of what creates financial unpreparedness is beyond our control. Stuff happens. We become ill, lose jobs, wreck cars, have unplanned children, miss promotions, and of course, get old faster than we thought possible. Then, as we approach retirement age, we do the math and discover that we are unable to retire on time.
Because most of us in the United States grew up in relative prosperity, we have fallen prey to a number of myths that threaten our financial wellbeing. Dispelling them is important, if we are to get back on track. Here are a few of the myths that wreak havoc with our financial security:
1. It’s OK to make exceptions to my financial plans
I frequently hear the comment: “It’s fine to go to an expensive restaurant from time to time.” Maybe so, but then again, maybe not. It’s a choice, and unless your financial bases are covered, it’s likely a bad one. Our grandparents would roll over in their graves at the thought of blowing on a single meal enough hard-earned cash to feed a family for a week. The notion that we have to make exceptions in order to live quality lives is absurd. First things first, and adhering to a long-term financial plan should be one of our highest priorities.
2. The good times will return
This may be true, but not necessarily in our lifetimes. History is replete with examples of economies that slumped for decades and only turned upward upon the occurrence of a major event, such as war. Good times are the result of prolonged prudence. Prudence begets wealth, wealth begets profligacy, profligacy begets poverty, poverty begets piety, and piety begets prudence. It’s a cycle, and only the wisest of peoples succeed at breaking it.
3. We shall always prosper
This might be true, if prosperous generations were able to continue being prudent when times are good. Unfortunately, humans forget the bad times quickly and assume that the good times are permanent. In the late nineties, some stock analysts speculated that the stock market had fundamentally changed and would always go up. The older guys knew better. Prosperity is not guaranteed, and we should base our financial plans on times of moderate scarcity. Only by erring on the side of caution shall we know that we are doing all we can to maintain the prosperity that we have enjoyed for so long.
4. The story of the ant and the grasshopper is dated
This marvelous fable is far from passé. The ant’s refusal to share his stores with the grasshopper seems cruel, but the lesson is poignant. The reality that follows imprudence is always harsh, coming in the form of wars, starvation, unemployment, currency devaluations, frozen bank accounts, massive corporate and governmental thefts, painful recessions, and frightening depressions. Nothing good stands at the end of the path of financial foolishness.
5. Life is not worth living if I have to cut back
Our notions of entitlement are remarkable and erroneous. No natural law states that prosperity is a given. It must be earned, and those who do so must also have the forethought to pass to their descendents the reasoning and logic behind their success. Only those who do the work and properly educate their young will create lasting prosperity.
6. My money is safe
Many of us have bought into this myth, but the events of the past two years have largely dispelled it. A rule of nature is that those who accumulate wealth must protect it or lose it. For thousands of years, humans have invaded each others’ territories to appropriate assets. Recently, we have witnessed one of the largest thefts in history—banks churned loans, paid inflated commissions and bonuses on those transactions, threatened the stability of the country, instilled fear in the people, and extorted massive sums of bailout money from taxpayers to replace the funds they stripped away. Sadly, in a few years, they will recover and be in a position to pull the same stunt again. Our money is far from safe.
7. My social-security benefits are secure
This myth seems to be dying. Most of us now believe that the social-security system is seriously underfunded. Unfortunately, we persist in deferring the problem to subsequent generations. No will exists to take the lumps required to make changes to the system. I am not counting on receiving social-security benefits as they are presently defined. Nor should you.
8. My retirement funds are safe
Retirement moneys are held in many forms, but basically, either you manage your retirement account or someone else does. Some folks earn money from real-estate, small businesses, or other activities, but most of us have our money in some sort of fund that holds securities. Essentially, the money is invested in stocks and bonds that go up and down in value. Just because a professional financial manager oversees a fund does not mean it will grow. The only safe retirement is a short one. We must plan to work harder, smarter, and longer.
9. I deserve a boat
Many of us treat vacation trips, summer camps, extra vehicles, pleasure boats, and other such expenditures as rights rather than privileges. The expectations are so grand that this myth will not die easily. Many factors, such as keeping up with the Joneses, go into it and complicate its unraveling. Those who are serious about preserving their financial futures will look closely at these things to see what should be eliminated.
10. My cable-television connection is a necessity
In the last two decades, we have dramatically expanded our definition of what constitutes a necessity. For many of us, cable television, cellular telephones, extra vehicles, enormous homes, restaurant dining, lawn care, and house-cleaning services have become necessities. Most of us could save substantial amounts by making some changes to these attitudes.
11. The story of the tortoise and the hare is hogwash
In the nineties, many people became hares. Some engaged in online securities trading and tried to get rich quickly. Others refinanced their homes and used the extra cash to take elaborate vacations or finance second homes. Still others leveraged two salaries to obtain mortgages beyond their ability to pay should one job disappear. Many of us acted like the hare in the fairytale, running ahead and laughing at the tortoises. Now many improvident hares have lost their homes, and others took drubbings by selling their holdings in a panic when the market bottomed in early 2009. The tale of the tortoise and the hare is alive and well in the American psyche.
If we are to make it through this recession and resume growth and prosperity, we must change our thinking. Our collective sense of entitlement is akin to the attitude of a spoiled child who is used to getting everything on demand. Groups like the Mennonites make steady financial progress generation after generation because they pass down to their progeny not only hard-earned assets, but also well-learned lessons of prudence that allow them to create their own prosperity and control their own destinies.