Brad Wardell's views about technology, politics, religion, world affairs, and all sorts of politically incorrect topics.
It's just easier to be a failure
Published on November 4, 2007 By Draginol In Politics

Over the years I've gotten to see first hand how people make decisions that make them financially successful or financial basket cases.

The sad thing is, it's not very hard to be financially successful. It takes no luck. It takes no particular skill. All it requires is a sense of DELAYED GRATIFICATION.  A sense that, sadly, most people don't have.

Becoming financially successful is the simple matter of building assets that appreciate in value over time at a greater rate than inflation.

That's it.

And yet most people don't do it.  Most people are consumers. They take their earnings and use all of it to consume things -- music, TVs, stereos, cell phones, video games, consoles, dinners out, lunches out, clothes, vacations, etc.

In a recent demographic study, most people defined as "poor" (family of 4, household income less than $30,000) owned at least 1 cell phone, owned a car, had a DVD player, had at least 2 televisions, had one computer game console (the study was a couple years ago so it doesn't say what console they had). And near majorities had a computer, had an Internet connection.

In other words, the poor are generally consumers. What they make they spend on consumables. 

I see it all the time first hand. People who make relatively little still manage to have new cell phones, iPods, nice clothes, a console, a better car than they really can afford, etc.

Companies can offer 401K plans, even with matching funding, and still most people won't make use of it.  They can't, they say, because they have debts.  But if one looks closely at those debts, you'll find an expensive hobby or expensive consumption of other kinds going on.

Consider this:

If someone at 25 puts in $2,000 a year into a matching 401K, by the time they hit 55, they will have about $600,000.

Even if the person only puts in $1,000 a year, a trivial amount (less than the average annual raise people get), they'd still have $300,000 or so at 55.

But people won't. Because they have no impulse control. No delayed gratification. They want stuff now...

..and many of them will bemoan the minority of people who do actually build assets and end up letting compounding interest make them financially successful.

One last thought to consider:

You have two young men, both are 25 years old and make say $45,000 a year. Not a bad amount of money.

Person A blows it all on going out to eat every night, having the latest greatest gadgets, etc.

Person B spends pretty good too but eats out a bit less, replaces his cell phone and computer once every other year, etc.  And instead puts in $3,000 into a matching 401K.

Time passes. Person A is 55 years old and has nothing to show for his consumption.  Person B has $900,000 in the bank! At 65, if he continues forward, he has $2.2 MILLION.

I try to hammer this home to as many people as possible.  Most people know they should be doing this but they don't.

That's why I ultimately say "oh boo hoo" when I hear people complain that there's a "shrinking" middle class. The answer is, yea, you have some people who invest (a small %) and most people who consume. And there's your single biggest difference.

 


Comments (Page 1)
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on Nov 04, 2007
Oh come on Brad! I agree with the majority of what you write but have to take exception here.

Luck does indeed play a role whether you wish to admit it or not. A single major accident or illness can totally change how things go for a person. The right time at the right place also plays a role.

Yes, poor planning does ensure failure, but good planning does NOT ensure success. There is a bit of luck involved either way.

I planned, saved, and did everything right but a single split second moment on a bit of black ice totally changed the direction of my life. A bit of luck one way or the other does make a difference.

Yes, many people are failures due to their own faults, but that is not always the case any more than all wealthy success stories can be credited entirely to their own efforts.

The world isn't black and white.

on Nov 04, 2007

I guess it depends on whether you define "luck" as not having some massive life damaging tragedy happen to you.

Do you want to put a wager on what % of the population has some accident or illness that significantly degrades their earning abilities?

The world isn't black and white.

Well golly, thank you for the insight. Gee, here I assumed it was. I sure wish I was as worldly as you are. Only then could I see the fine shades of gray that create the rich tapestry of life.

Please.

Feel free to explain why the average American cannot save $1,500 a year.  I'd really like to hear the excuse for it. Not saving and investing isn't a luck. It's a matter of people not being able to delay their gratification. The existence of a tiny TINY percentage of Americans who have legitimate problems does not change the generalization.

on Nov 04, 2007
I agree alot with Brad but I also agree with you Mason. I'm thinking Brad is talking the rule, not the exceptions here. Yes, there are things that can happen, an illness, an accident, a calamity, etc but for the most part I too see exactly what Brad is talking about up close and personal. We actually help people with their finances and they for the most part are in a mess. I see people whine about not having money and witching at the goverment for not doing more for them as they go out to eat night after night.

My husband and I rarely eat out. We know what a big waste of money that is. We have our occasional pizza or hamburg or whatever but we would much rather invest and have a comfortable life later on when we decide to stop working so hard. We have quite a bit of money now saved and are looking forward to a comfortable living even if we never totally retire.

I was debt free, mortgage free and all before age 40 and it had nothing to do with making lots of money. We maybe hit 100,000 once or twice later on in our marriage, but yet have been able to buy a 300,000+ house cash. I attribute that to NOT having all the latest fads that come down the pike. We have no cell phone, no ipods, no fancy dancy cars and no debt even tho we just finished putting three kids thru college. One of the things we did was build a house from scratch cash free while living in the basement when we were first starting out. While all my friends had nice new homes with nice big mortgages, I was living in the basement with three babies. My stove was a hot plate. I made chocolate chip cookies out of the toaster oven and washed my dishes in the bathtub. Did this for two years. Ten years later we sold that house in six days and all was profit put into this house we live in now.

We have friends and relatives who make much more than we do, have less kids and are loaded with debt including even more than one mortgage on their one house. What they do have that we don't are the latest "things" and the fancy dinners and their desire to keep up with the Joneses. They go on expensive vacations and give their kids whatever they desired. They can keep it. I'd rather sit in my house debt free and make my own dinner.

A fool may make money but it needs a wise man to spend it.
on Nov 04, 2007
Most people know they should be doing this but they don't.


Especially the younger crowd, I've noticed. I think it's hard for them to see and comprehend how those little deductions can add up and grow over time. I remember myself years ago when I started contributing on a whim to a deferred compensation plan that was offered in addition to the 403( thing I already had -and I am SO glad I did! It's waaaay up there now! What younger people need to see but can't/won't is that someday -sooner than they think- there is light at the end of the tunnel. Heh, and when I get there, It's my plan have a little folding green to enjoy it.
on Nov 04, 2007
I sure wish I was as worldly as you are. Only then could I see the fine shades of gray that create the rich tapestry of life.


Now you're being nasty for no reason at all.

As I already stated, I agree with most of what you say but you do tend to generalize yourself. There isn't a single success story or failure story that fits a mold. Yes most successful people get that way through hard work, but there are plenty of people who also work hard who never achieve what you have.

As much as I appreciate JU and as much as I respect you and what you have achieved I just have to say here, get over yourself. I don't say this with any disrespect or malice of any kind but I think your ego is very overblown in this regard. Banish me if that's your wish, it's your site. I am merely voicing my opinion.

It's true that lazy people will never be successful, but there is a lot more to it than just working hard and planning ahead.
on Nov 04, 2007

Interesting discussion, with some heated comments already.

The thing that I'm most disappointed about is that the Democrats were able to demagogue away any hope of reforming and improving Social Security by putting even a small percentage of the contributions people make into private accounts that would grow in the same way that 401K plans do.

I've participated in 401K plans ever since I was first permitted to.  I admit that for the first 'real job' that I had I didn't personally save money.  I was young, my wife and I both were under paid (relatively speaking) and we were trying to build our home up with things that all households use.  Of course at the time (many moons ago), a Microwave cost a lot of money.  TV sets cost a lot of money.  VCRs were toys for the rich.  Video game systems weren't cheap, and computers cost a lot.

We borrowed a good bit, ran up debts, put a lot of these toys into our home, and were bailed out with a lot of help from my in-laws.  Later I took a new job that didn't pay any more than the old one did (it paid less actually) and didn't get into the 401K plan right away because I wasn't allowed to.  I did get in later, and put money that I had from an ESOP plan that was run by my former employer into that 401K plan, but I also made the mistake (for my family) of borrowing money out of that plan and not getting it paid back.  That started a bad cycle of me taking money out of my retirement savings to get things done around the house and such, and eventually I wound up basically wiping out all of the money that I had in my 401K plan prior to my mid to late 30's (in age).

I've been saving up again, doing the best I can to get as much tucked away as quickly as possible.  Sadly, I guess I might have to concur with the idea that luck has played bad roles along the way.  My wife broke her leg badly early on in our marriage.  She has basically been disabled ever since.  She works, but limited hours and doesn't bring home near the income she could have over time.  We had children (that was clearly a choice, not so much luck), and my wife remained a stay at home mother for most of the children's youth.  During that time we've lived off one income, or off that income and the money that had been saved in the 401K accounts that was later wiped out.

I had the bad luck (sadly) to lose a job that I liked a lot when I had a lot of debts that had been rolling with me as I was travelling for my job.  Losing that job and not finding a new job for 2 months wiped through what money I got in severance pay and then some.  From losing that job, I was basically forced to take the money out of the 401K plan so we could keep from going bankrupt and so we could take care of badly needed home improvements.

We live in a mobile home (choice), and in doing so we don't build up equity in the home in the way that home owners do.  We can't borrow with a Home Equity Line of Credit and get tax benefits and such from it.  We get standard deductions yearly and get back money most years -- except the year that I took the 401K money and had to write a massive check to pay taxes and penalties for taking the money out of that fund.  The government considered me rich when I was far from it.  Luck or choice??

In the time since that all happened I've been lucky in getting a job at a place I love working, and I've done everything I can to put as much as possile into the 401K plan.  My wife complains a bit about it. My ultra-financially conservative father-in-law doesn't understand at all why I put so much of my income there (which is surely a choice).  That would be because I've never been a government worker, and don't have the retirement plan that he had.  I don't have a sugar daddy handing me money, though he has helped my wife along the way with money over and over again because he knows she isn't making that much and if we really had to live off my income we couldn't do it.

I have more than my share of toys, and still spend a good bit on excesses in my life. Starbucks too frequently.  DirecTV and all of the channels I can afford to get on same, computers and video games.  Music here and there.  Movies in various formats along the way.

But, we don't spend lavishly on trips and such, and we generally do live within our means now where we didn't when we started out.  I find bargains here and there (for phone service as an example) that help to cover some of the cost of some of the luxuries.  I wouldn't say it's hard, but our life is far from easy.

Delayed gratification?  Maybe.  Most certainly as I age I look at the future and how close I am (which still isn't that close) and consider that I need to do my best to put money into retirement savings because there's no way the government will have anything close to a comfortable living for me if I rely on social security.

on Nov 05, 2007

Now you're being nasty for no reason at all.

I was responding to your patronization with the same in kind.  Telling me that "life isn't black and white" is incredibly condescending.

You are entitled to your opinion, but you have not put forth any sort of rationale as to why the average American can't simply put away a couple thousand dollars a year in investments.  That's all it takes. And yes, it really is that black and white. Barring a personal catastrophe, if you put away a couple thousand dollars a year, every year, starting when you're 25, you'll be in very good shape when you get into your 50s.

on Nov 05, 2007

Especially the younger crowd, I've noticed. I think it's hard for them to see and comprehend how those little deductions can add up and grow over time.

Indeed. Younger people, in particular, often have no sense of delayed gratification. And it is when you're in your 20s that it matters because the receipe needs time more than money. There's no substitute.

I've yet to meet someone who is making a reasonable wage who couldn't live basically the same on $2,000 less.  But people always find excuses as to why they just can't manage to manage their earnings wisely. Oh, they had to get that new cell phone. Oh they just had to get this really cool Halloween outfit. Oh they just absolutely had to get an iPod interface for their car. (though really, for most people it's the eating out that gets them).

If someone reading this REALLY thinks it's just a bunch of luck or whatever, then all you have to do is explain why the average American (and 70% of Americans earn more than $30k per year) cannot invest $2,000 a year.  Please, explain that.

on Nov 05, 2007
Even if the person only puts in $1,000 a year, a trivial amount (less than the average annual raise people get),


Hm. I was going to argue with this saying that it only applies to people who make more than $33,333 or get more than a 3% raise each year... which applies to few people that I know. But then you write "(and 70% of Americans earn more than $30k per year)" and that appears to be true, for full-timers. I guess I just know the wrong people.
on Nov 05, 2007
Companies can offer 401K plans, even with matching funding, and still most people won't make use of it. They can't, they say, because they have debts. But if one looks closely at those debts, you'll find an expensive hobby or expensive consumption of other kinds going on.


You are absolutely right, Brad. I am myself too stupid to start a pension plan and I am now 30 years old (since a few days ago). I don't really have a sense of delayed gratification, although I do have the advantage that what I want tends to cost than what I make. So, yes, I do buy a new Mac every year and a laptop every few years. I bought a useless PDA and an iPod (which is not useless), a Nintendo Timewaster (the DS), and other toys, and I don't cook (instead I get sandwiches from Subways etc.), but all that is not really that expensive.

Most of my money went for studying Hebrew in Israel (and taking the associated time off work, living without an income etc.). That's my expensive hobby. But I count it as education and tell myself that it is indeed an investment, at least in my mental abilities, specifically my ability to learn new things.

However, I am planning to start a pension thing this year, probably in Germany (where the government sponsors pension plans*). But so far my financial planning has been quite miserable. I am not in debt, but I don't have any savings. The latter might become a problem. I trust my ability to stay afloat too much and thus never bought a boat, you might say. The problem is that it worked so far.

Every time I read one of your articles here about success, I am being reminded of my mistakes. I shouldn't live on the border between wisdom and stupidity. I don't have to change much. I just have to start saving SOME money, maybe 200 euros a month. It probably won't even affect my buying books, DVDs, and stupid digital toys much.

And speaking of stupid digital toys, the Zelda game for the Timewaster is EXCELLENT! I never had so much childish fun with a video game before.

Notes: *If the government didn't sponsor approved plans, poor people would buy stupid pension plans and lose their money and finally cost the state more than the sponsorship. For some reason people tend to buy into investment schemes that promise high returns even though it's obvious (and investors are told) that it is risky.
on Nov 05, 2007

For some reason people tend to buy into investment schemes that promise high returns even though it's obvious (and investors are told) that it is risky.

So you have heard about American Social Security?

on Nov 05, 2007
Barring a personal catastrophe, if you put away a couple thousand dollars a year, every year, starting when you're 25, you'll be in very good shape when you get into your 50s.


That is true enough. I think the reason many don't is that they foolishly bury themselves in debt to the point that even making the minimum payments on their debt becomes impossible let alone putting anything away for their future.
on Nov 05, 2007
So you have heard about American Social Security?


Actually, that's part of it. But I have to admit that the German idea of a private pension with government sponsorship to keep people from investing in stupid schemes makes a lot of sense to me. On some issues I do believe that the government should keep people from making mistakes, especially when the government is obligated to help them out if they do.

on Nov 05, 2007
Delayed gratification is one thing, but I don't really see the point in giving up everything now in the hope of living long enough to enjoy it later. I enjoy gadgets and the latest gizmo's. So I buy them. But only if I can afford them. Pension plans are mandatory around here for ordinary employees, I put aside money for a new car in the future, and I have a life insurance which will take care of my mortgage in about 15 year.

So I won't be a millionaire when I hit 65, and frankly I don't care. I enjoy my current life, and barring any disasters or long term unemployment, my life will be financially sound. Which is good enough for me.
on Nov 05, 2007
Pension plans are mandatory around here for ordinary employees


Don't know if it's the same here at a certain age. I am not an ordinary employee.
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