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I've talked in the past about "Scarcity and Abundance."
September
20, 2009: The Problem of Scarcity 2: It's All In Your Head
September
13,
2009:
The Problem of Scarcity
At that time, I presented a hypothetical example of a typical
American household, making $250,000 per year from two working
parents. This is 5x the median U.S. household income of $50,000.
Five times more! In one of the most materially abundant societies
the world has ever seen. And yet, instead of abundance, people in
these situations often feel the incessant press of apparent
scarcity.
This all got a little more real, when a longtime friend of mine
started to discuss his own struggles with these issues. He is
fortunate enough to be in the top 1% of U.S. household income, and
to get that from one working parent, allowing his wife to take care
of the household and raise the kids. He is about as fortunate as any
person can reasonably expect to be.
Like most American families, he spends every penny he gets. He is
bewildered by this. Neither he nor his wife are typical
spendaholics. They have (relatively) cheap cars -- a Ford and a
Toyota. They don't wear designer clothes. They don't have vacation
houses, boats, or planes, or even a motorcycle. They don't go on
(many) big-dollar European vacations. They don't have mistresses,
drug habits, or needy relatives.
Plus, he is a little worried about the stability of his income.
Earlier, I was talking with another friend of mine. We were having
coffee in a Manhattan hotel. He was telling me that he had been
sitting on the balcony of a Fifth Avenue prewar co-op with a friend
of his. If you know a bit about the geography of New York money, you
know these apartment buildings are some of the most expensive and
desirable in the city. The co-op boards are known for rejecting
people like Madonna or (famously) President Richard Nixon, after his
resignation. They don't like having such riff-raff in their
building.
"Look," this fellow was saying, from the balcony of his megabuck
apartment, "I make $3.5 million per year. I spend all of it. I even
have some debt. And it looks like my job is not so stable." Guess
what -- there are no $3.5-million-a-year jobs in the world that are
"stable." This ain't working for the Department of Motor Vehicles.
My friend recently retired, after a successful career on Wall
Street. His wife, who is about 40, makes about $400,000 per year as
as an analyst. They have no kids.
"Listen to me," my friend told this fellow. "I live in a one-bedroom
apartment in the Bronx. I have no car, and no television. Think
about that."
It's always the same story. Only the magnitude of the numbers
changes.
I was thinking of what to tell my friend.
I decided that the first thing is to recognize that if you want to
resolve this issue, and feel abundance (which you should be feeling,
with an income in the top 1%, or the top 20%) instead of scarcity,
you have to do something that is different than what other
people do. Other people spend all their money, or nearly so.
This is our common American pattern, whether you make $30,000 a year
or $3,000,000. Yes, some people have a savings rate of 10%, as if
this is some kind of miracle of frugality. It's not. Chinese people
have a savings rate of 50% -- on average!
A lot of people are not actually willing to do something different
than what other people do. They think they are ... but they never
actually do it. They just like to think they have that ability. It's
like an alcoholic or chain-smoker who can "quit anytime." Uh-huh.
Right.
What creates abundance? It's not the amount of money you make,
although that can certainly be a factor. It is about having a lot
more resources (time, energy, money) than you need for your
aspirations and expectations. We really don't need very much
in this life. A little shelter, clothing and food. It is actually
quite minimal, and (in some but not all ways) more easily acquired
today than at any time in history. Beyond that, the Internet, public
library, public museum, and public park provides about everything
else a person could want to enjoy all the fruits of culture.
Thus, our "needs" are ... not exactly "wants" ... but the
consequences of our aspirations and expectations.
For example, both my friend and his wife were educated in private
elementary and high schools. Their three kids go to a private
elementary school. This is their "expectation." They live in a
rather nice area, in an upscale suburb of Washington DC, and the
local public school is probably pretty good. Maybe not as good as
their private school, but nothing shabby. It is also, in their
perception (which doesn't necessarily correspond to reality), "what
other people do" who have their income and are in their professional
peer group.
Thus, the process of reducing your "needs," should begin with the
process of choosing new aspirations and expectations.
I don't think you should start with the idea of "spending less."
Penny-pinching. Belt-tightening. Taking the cheaper alternative. No.
For example, let's say you have an aspiration or expectation to
drive an Aston Martin V12 Vantage, at $180,000.
Whoops -- not enough money.
OK, now we downgrade to a Porsche 911 Turbo, at $138,000.
Errrr ... still not enough money.
Drat. Now we downgrade still further to a lowly Nissan Skyline GT-R,
at $100,000. Ugh. A Japanese car? Gimme a break.
Hmmm ... still not enough money.
OK, now we are scraping the bottom of the barrel, with the Chevrolet
Camaro ZL1, at $54,000.
Not even a Corvette! A Camaro. A car for people who drink Budweiser.
This he can swing -- barely. It's a sacrifice, but it is worth it.
It has a 6.2 liter V8, at 580hp, which helps make up for the
Made-In-Detroit lameness of it all. If you squint, you can still see
a sort of Steve McQueen manly man aura around it, although maybe
only if you are over fifty.
This is the process of penny-pinching and belt-tightening. The
aspiration and expectation didn't change. The person still wants to
(or expects to, which is not quite the same thing) drive an Aston
Martin. Now he drives a Chevy, and is depressed. He wants to
upgrade, at least to the Porsche, as soon as he is able.
Plus, in the process of downgrading, a funny thing happened: he
spent all his money! He spent $54,000 on a car. The reason he spent
$54,000 on a car, instead of $180,000 or $100,000, is because that
was all the money he had. Somehow, in the process of spending less,
he spent everything. And still he is disappointed. First, he
experiences "scarcity" because he doesn't have the dough to drive an
Aston Martin. Then, he experiences "scarcity" because, having spent
all of his money on the Chevy (estimated cost-to-own of $75,671
over five years), he has no money left, and lives in fear of
the briefest interruption in his monthly paycheck. Plus, he is fat
and out of shape, and spends his evenings watching movies on
Netflix.
So, let's embrace a new aspiration. Let's say the person wants to
play squash at a competitive level. He gets a membership at a nice
squash club for $225
a quarter, and plays there six days a week, after work.
He is having a great time playing squash. He gets better and better,
and rises in the rankings. Pretty soon he is the league champion. He
fully attained his aspiration and expectations. He is happy and
satisfied. Along the way, he also got into great shape, is in
awesome health, and looks super. Plus, he met lots of other neat
people, who are also squash enthusiasts. He has no time for Netflix,
so he sold his television on Craigslist.
There was no penny-pinching and no belt-tightening.
By the way, he only spent $900, on annual club dues, plus $400 on
equipment, for a total of $1300. He has $53,000 still in the bank,
which he invests in income-producing property. This is another
aspiration and expectation of his -- to acquire income-producing
assets. He studies the real estate market closely, and educates
himself on the details of property investment. This also takes a lot
of time and effort, and is a lot of fun, and introduces him to a lot
of other interesting, like-minded people, but costs almost nothing:
$300 for books. So, in the process of not-belt-tightening and
not-penny-pinching, he actually achieved two aspirations. Plus, the
income from his property pays for his squash enthusiasms, so his net
cost is zero.
He doesn't even think about what kind of car he drives. He drives a
Subaru Impreza that's six years old and has 90,000 miles, which is
good enough not to offend anyone. His car is largely irrelevant to
him, because his attention is focused on playing squash and real
estate investing. We can only focus on so many things, and if you
focus on something like squash and investing, then you will
naturally not focus on all the other things. He also doesn't worry
about an interruption in his income. He doesn't live
paycheck-to-paycheck. He is happy and satisfied with this lifestyle.
In fact, his aspirations and expectations -- playing squash and
real-estate investing -- are actually much more worthwhile on an
absolute basis than spending money on cars. The fact that they
also don't cost much is just another plus.
August
30, 2009: Summer Slack-Off 3: How To Have Fun
He enjoys a life of abundance.
Choose aspirations and expectations that are more worthwhile on
an absolute basis than the common alternatives. Like playing
squash, at a serious competitive level, instead of big-car-fondling.
Then, you are never "giving up" anything. You are, instead, avoiding
time-wasting activities, or life-wasting activities, which also
happen to be money-wasting activities. It is like eating healthy
food instead of junk food. It's something you should do anyway. The
fact that the healthy food also costs a lot less than the junk food
is just another plus. Why would anyone eat junk food when it is not
only bad for you, but also costs more? Duh. That would be stupid. In
the same way, you should avoid junk activities and junk
aspirations. Which are just as common, in American life today,
as junk food.
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