If you are broke, there are three occasions that make it perfectly okay to complain about it: health problems, divorce, and job loss.
That is because those three things are economically and mentally devastating in nature, and can plausibly be caused by third-party actors screwing you over (bean counter employer letting you go, cheating spouse that takes half your stuff, unexpected cancer diagnosis, etc.) rather than mistakes that you make yourself. Although to be sure, those three things can be fueled be your own behavior—you could chain smoke two packs of Marlboro 54’s per day and eventually get lung cancer, you could be spending your days on the job reading The Conservative Income Investor rather than working (hey, some things should be forgivable), or you could be the crazy spouse that uses the kitchen dinette set to practice your quarterbacking skills, with your husband/wife being the unwilling wide receiver.
I recently finished reading one of the worst personal finance articles I’ve encountered online, written by Jim Gallagher of The St. Louis Post-Dispatch. It’s about a couple named Michelle and Jeff M. that live in the state of Missouri. They are probably very nice people. If my writing in this article sounds harsh—which it will—I’m not attacking them, but rather, their conduct that I don’t want you to emulate.
Here’s what happened. Jeff and Michelle had run up tens of thousands of dollars in credit card debt, and then reached the conclusion that they were living beyond their means when they received a $10,000 medical bill following the birth of their third child, during a year in which Jeff learned that he would no longer be receiving annual bonuses at his job. They decided the change.
So far, fair enough—you make mistakes, you diagnose what went wrong and what is causing your unhappiness, and then you craft a plan to change your life and make it better. That’s how intelligent adults behave in the face of adversity, and that is exactly what Jeff and Michelle did at first.
They cut their budget, deliberately lowering their gas bill and removing unnecessary expenses from their budget. They started shopping at Aldi’s, and making deliberate decisions about where they spent their money. Jeff picked up extra odd-jobs. Basically, they took an active approach to their financial life, and they started to see the forward progress that their actions deserved. Within fourteen months, their credit card debt disappeared. At this point, the story was a great profile in success—if you spend deliberately, good things will happen to your household’s balance sheet.
And then, I reached the end of the article, which could have been written by the village idiot of financial planning:
“Their credit score improved. That helped when they sold their home this year and moved up to one big enough for their expanded family.
Austerity is over. They’re planning a vacation again.
The experience turned them into committed cheapskates. On the Web, Jeff blogs about trying out running shoes, then buying them half-price on the Internet. They still shop at three grocery stores to catch the lowest prices.”
(1) First, they bought a bigger house. This goes against everything that intelligent people do to build wealth. When you study the early records of Charlie Munger, Walter Schloss, Peter Lynch, and Donald Yacktman, you will see that they all had fanatical focuses on keeping their fixed monthly costs as low as possible. Your income is the lifeblood of what you can use to build wealth. In particular, the gap between what you spend and what you earn is the raw material you get to deploy intelligently to become richer, and this family decided that raising their fixed, monthly expenses was in their interest. When you live at your means, you are almost guaranteeing that you will never end up a millionaire.
(2) Then, they wrote the line that possibly caused me to experience physical revulsion. “Austerity is over. They’re planning a vacation again.” It’s like saying, hey, I lost fifty pounds by doing this weird thing called running and keeping my mouth shut when I saw other people eating cheeseburgers, but now that I look good, pass me the gooey butter cake because I’m sexy and I know it!
The line “austerity is over” causes me to tremble for them because it shows that they have very little concern about the welfare of their future selves. Instead of saying “austerity is over”, they could have said this: We are going to continue to spend below our means, and now that we have paid off our debts, we are going to funnel that money towards real estate, bonds, and dividend stocks. We want to see money trickle into our accounts for doing nothing but being passive owners, and we are going to build our family’s house balance sheet into a fortress. Instead, we get this: “They’re planning a vacation again.”
(3) And it ends with Jeff saying that he tries on shoes at local shoestores and buys them online instead. Yes, that action should be perfectly legal. But it crosses the threshold from frugal into cheap. Being intelligent and frugal is being a doctor that drives a beat-up old car because it works fine. Being cheap involves taking advantage of the resources of others to benefit yourself. When Jeff goes to that shoestore, he is taking advantage of the time, expertise, and merchandise of the shoestore so that he can personally benefit—he is extracting tangible and intangible resources from others without giving back anything in return. If you are going to do that in life, fine. But don’t brag about it and pat yourself on the back for it. That’s the kind of character trait you should try to either eliminate or atone for in your life elsewhere, not hold up as a model for others to emulate.
When you find yourself in a bind, and then engage in intelligent behavior, you don’t abandon the intelligent behavior as soon as you start to see positive results. This family had the opportunity to adopt a new lifestyle—and I pray for them that they change their minds and re-adopt the habits that led to success—but they didn’t. They could have shoveled ten thousand dollars per year into retirement accounts and plain-vanilla brokerage accounts so that they could start receiving $500 and $800 monthly kicks in “automatic income” within a few years, but the decided not to pursue a path that would lead to financially successful living. As soon as they got back to ground zero, they decided to get a bigger house, go on vacations, and declare the period of austerity over. Does any of that sound conducive to long-term wealth building?
The good news is that you don’t have to be like them. You don’t have to demand the pampered luxury of a bigger house, vacations that cost so much money that they require deliberate planning, and declarations of war against austere living. If your household has the mindset of “austerity is over”, do you really think you’ll be setting aside hundreds of dollars per month to build wealth?
When Benjamin Franklin predicted what would lead to the downfall of the American Republic, he said he feared there would be so much material excess and abundance that it would lead to sloth and the dissolution of a grinding, balls-to-the-wall work ethic (yeah, that’s my paraphrase). At no point in human history has it been easier to create wealth. For just $500-$700 per month, you could automatically have money buy shares of Nestle, Clorox, Johnson & Johnson, Procter & Gamble, ExxonMobil, ConocoPhillips, Becton Dickinson, and Dr. Pepper for a dollar or less in fees per month. The path to success lies before you. Take it.