The numbers don't lie. They tell a tale of a society living well beyond its means. This is why 80% of Americans are broke and living pay check to pay check.
I'm a fan of a guy by the name of Doug Casey. He runs a company and web site called The International Man I was browsing through YouTube the other day, and I came across this interview he did way back in 1981.
This was an interview on the very popular day time talk show back then, "The Phil Donahue Show". That show was like the Oprah show of it's time. Very, very popular.
Doug was interviewed about money and it was clear that he had predictions that eventually turned to truth. His timing was off on some, but the ultimate end point was correct on most of his predictions. In listening to some of the audience questions, you could see a society that was concerned for their financial future yet were patriotic and loyal Americans. Doug told his story and theories. It is interesting that 10 years after this, Doug made a fortune buying the destroyed assets of the USSR after it collapsed and then sold it later for billions. He's done that a lot - he is an expert in Crisis Investing, having literally written the book on the subject. He understands markets & timing well and he also understands human nature. Not that he isn't without his own faults, but when it comes down to the basics, he knows that you can't pretend away financial problems.
The numbers don't lie
I was reading the comments on the YouTube video post of that interview, and someone had taken the time to show a comparison between 1981 and 2014 (when the YouTube post was done). It was amazing. I was 18 years old in 1981, so I could see so many things that changed in the course of my life, namely:
World population almost doubled, from 4 Billion in 1981 to 7.3 Billion and rising in 2019
Salaries about doubled since 1981. The average salary back then was $23K, and today it is about $50K
Home prices went up 5x. The average home in 1981 was about $80K, and in 2018 was about $400K (US national average)
Life expectency in 1981 for a US male was 73 years. In 2018 it is 76.1 years. This minor increase in life expectency is offset by the huge drug addiction crisis.
Healthcare costs in 1980 were about $1,100 per adult person in the USA, per year. In 2018 it is about $11,000 per person. A 10x increase
The Dow Jones Industrail average was about 970 in 1981, and today it is over 25,000. A 25x increase.
Numbers can be really boring, but they tell a number of stories.
Clearly there are winners & losers in the world since then. The losers are salaried workers. Their wages have never kept up with the costs of housing, let alone the cost of healthcare, since 1981. The winners, however, are those that owned houses (who saw a 5x increase on their equity) and most notable are those with equity investments who saw a 25x return on their money (based solely on the DJIA as a guage of the market value).
This supports my general point that if you want to be constrained, get a job. If you want to be unconstrained, invest and live off the dividends.
The divide between profits & losses
If you are a business, you probably generate profit & loss (or Income) statements regularly. Most generate these each month - some even more frequent. They are required for tax returns, but they are a great tool to use for measuring the financial health of your enterprise. You can quickly see how much income you bring in, and what your costs & expenses are to run your enterprise, hence what profit or loss you have at the end.
If you run a profit, you are doing good, you pay your taxes and you keep the profits - maybe invest them back into the business, or issue them back to shareholders as dividends or earnings. If you run a loss, you are doing bad and you have to fund the shortfall somehow. You might need a short term bridging loan. You might need to generate more capital by having shareholders put more equity back into the business. Maybe you run a seasonal business where you make your profits during peak periods and other times you expect to run losses. I mean the rent still needs to be paid regardless of whether it is your busy or slow season, so you bank away profits made in the busy period for capital requirements in the slower periods.
All of this makes perfect sense. But why is it that the average family doesn't do this?
It isn't that hard to learn rudimentary accounting and be able to read a profit & loss statement. For a family you just measure your income (probably salaries of everyone in the family, maybe some dividends, maybe some other "side hustle" money, etc.), and you track your expenses. The rent or mortgage, the utilities, healthcare insurance, car bills, home insurance, food, clothing, etc. Take the total of the expenses away from the total income, and you have your profit or loss.
If you have a profit, great. You are doing ok. If you have a loss, bad. You are not doing ok.
Back to the numbers
So in the case of the comparitive numbers, based on Mr. Casey's interview compared with today, you can see that most families are losing money. The problem is simply that the costs of things have far outpaced the rising income levels to pay for them. In that case, you have two simple choices:
You increase your income by getting a 2nd job, or those not working get a job and contribute, or
You decrease our expenses by canceling things you don't need, selling things that cost you too much to keep, etc.
Pretty simple, right? I mean if you are tracking this stuff on a regular basis you will see losses coming and you can react before you incur more losses.
But most families don't do that. They don't know they are losing money until it is too late. Too late is that they can't pay the rent, they can't save any money in case the car breaks down, they can't buy food and have to ask for assistance with food stamps, etc. It isn't that they couldn't make more money, but they literally don't know they are losing money. Because they don't track it.
The biggest problem is that the two options I have detailed above are the ONLY real options here. However it seems that our society thinks there is a 3rd option - Magic.
Let's talk about Magic Money
I mean what is real and what is fake? This seems to be a popular point of discussion in the media in regards to politics, etc. but this "magic" has spread over to money for a while now.
The Magic money solution, or option #3, is credit. Credit is where you take someone else's money and bridge the difference between profit & loss, on the priviso that you will make a profit in the future and you can pay that back (with interest) to get you through the short term cashflow needs you have. Businesses do this with "overdraft financing" or "short term credit", etc. Families do this with credit cards, pay day loans, title loans, etc. All are just a bad thing and a result of losing money.
However since the banks make so much money from these legal schemes of credit, they promote them like they are a good option. Like you can be a failure in business but who cares - you can always fall back to option #3 - credit. The problem is that by doing that, you are selling your future out to the banks and you will be forced to work hard to not only make a profit for the future, but make more of a profit to pay off the credit that you incurred.
What if you can't up your income though? What if your salary is fixed and you wanted to take the family on an expensive vacation, or you wanted to buy a new car, or buy a new house?
You see this is where things get really tricky, because in society we are told that these are the things that make the "middle class lifestyle" and they are good, wholesome and pure. But the problem is that just like a business that is making a loss and needs credit to bridge them to the future "super profit" periods, the same products are being used to fund these lifestyle choices that are exactly that - choices.
Change your perception of wholesome
At some point, you have to realize that our society doesn't make the sort of money that we used to make in the 1980s. That is simply because although the numbers went up, the costs went up 10x faster. The efficacy of a dollar is far less than it used to be, often because money is created out of thin air and enters the monetary system, thereby dilluting the value of the existing money in the system. Think of this like a glass of cordial. The more water you put into the glass, the less taste the cordial has. The concentrate is expecting a certain amount of water, but if you overfill it, you end up with a glass of basically water with a faint scent of what should have been the main flavor of the drink. That's money being introduced by Federal Reserves or National Banks that control money supply. This happens typically when a country is in crisis, and is matched with reducing interest rates so that the ongoing costs of credit becomes more bearable. However it is all "magic money" and becomes an excuse for people to not look at their own profit & loss statements for their families.
If we accepted that you don't need a new car every 4 years, you don't need a new phone every 2 years, you only need to eat out fewer times and we adjust our expenses downward, then we can make a profit again and avoid credit entirely. We can pay off the banks, creditors, well ahead of schedule, thereby reducing the interest payments meaning a further reduction of expenditure. This is how a healthy business operates and it means that you can save 50% of what you make (or more) because your costs are contained. The perception of worth shouldn't be the material things we have because 99% of the time, we don't own them. They were bought with credit and that just enslaves us to the bank. We are selling our future out so that we have no ability to start to save any more.
All because we fell for the magic trick.
When is credit ok?
If it is an emergency and you have no choice, then you have to do a deal with the devil so to speak. But when you are not in that situation, unless you are buying an appreciating asset or something that generates you money, then credit can't be paid back unless you sell your time to pay it back. I have plenty of articles on why selling your time for money is a fool's game. But maybe some of the larger things in life that you need in order to earn money (such as a car, house, etc.) may need to be purchased BEFORE you can earn money, and I might give that a pass only if you purchase within your means and your credit period is minimal. E.g. No more than 4 years on a car payment and no more than 15 years on a mortgage, and have at least 20-25% down payment to go into the loan so you can shop for better interest rates. Or in the case of a house, pick something that is cheap - especially if it is your starter home. Why? Because most people will immediately change out a home to make it their own, including new paint, flooring, rennovations, etc. and it makes no sense to buy a perfectly painted, renovated place if you intend on stripping all of that out anyway. A fixer-upper would be a far more prudent option.
So in summary, you need to understand just how bad the numbers make today's society look and how if you don't have a profit & loss statement for your family, you are never going to be able to make informed decisions on money. Particularly when every bank around you is offering you credit cards, car loans, pay day loans, etc. You shoud NEVER take credit as anything other than an emergency fix to a problem, after first making sure there is no other way. It is a slippery slope you don't want to go down.
And if you are buying a home or a car, make sure you go into the deal with enough of a down payment to reduce the borrowings and that give you some negotiating room in getting the best deal. And that the term of the loan is as short as possible.
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