The discipline of having money (part 2)

Note: Before reading this part of a two part series, please read part one and write down your perspective.


My experience with this exercise is that individuals fall into one of the following categories:

Spenders

Folks in this group usually note spending type activities such as buying a new car, going on a vacation (and taking family with them), acquiring a new HDTV and surround system with an Xbox 360 or the like, etc.

Debtors

Individuals in this area already have debt and they are using the unexpected funds to reduce or retire accumulated debt. Note that many, but not all, debtors arrived at this point because they are actually spenders.

Givers

Some folks are extremely charitable and would give a large part or all of the funds away to causes they are looking to help.

Savers or Investors

This group has noted how they will save or invest funds for future gain or income. In many cases, they can exhibit traits of the first three: they may spend a piece, could retire some debt, and might give some away to charities. The majority of the funds, however, are saved or invested for future return.


Here’s the root message in this thread and why I have titled it “The Discipline of Having Money.” Unless you fall into this final group of savers or investors, weeks or months after receiving the $50,000, it’s gone. Meaning you no longer have $50,000 or, in many cases, even a fraction of it. Money has burned a hole in most of these individuals’ pockets.

Let’s take the average American family making just over $45,000 who elects the first option. Sure, they have a shining new SUV in the driveway and a state of the art HDTV. Other than a couple of dinners out, the money is gone. But here is how their lives are actually worse off: now that they have the new Navigator, stepping back five or seven years later to a more affordable model (after the current one is worn out and worth less than a third of what they paid for it) won’t be comfortable so they’ll overextend and lease another luxury model. Further, during this ownership, they will have paid much higher registration fees, insurance, etc plus the extra $12 a month for HDTV service, etc. They are caught in an endless spiral where they consume, consume more, until they are so underwater they wonder what happened.

Now consider the saver or investor. This individual knows that, properly invested, he or she will earn income, technically the $50,000 will earn or labor for them, to the tune of $2,500 year, guaranteed by the Federal Government through T-Bills or insured Cds. Or, these individuals will use funds for long term stock market investments (closer to 10% annually or $5,000 per year), or leverage the funds as a down payment commercial or residential investment real estate which will provide future income and, most likely, significant future capital gain. This is the ONLY group that, in the end, still have $50,000 and, in fact, actually have more just six months later.

Having money requires discipline!