If you read finance content regularly, most of it is a blur. There are only so many different ways that a person can say: diversify, live below your means, set aside an emergency fund, and so on. It’s like reading about weight loss. Everyone knows the answer to the question is some derivation of “put the cheeseburger down” and “hop on a treadmill”, but people are always on the look out for something new.
I mention all of that for one reason—it’s hard for a particular personal finance article to get “stuck” in my head. If you skim through 15-20 articles in less than 25 minutes of reading per day, it takes something special (or anti-special) to catch my attention.
For some reason, I keep finding myself going back to this article I read in the St. Louis Post-Dispatch this week about a family that found themselves in $22,000 worth of debt, decided to cut their spending and pay down their debt, and then they eradicated it all under two years.
And then, I got to the part that really bothered me: as soon as they got their debt paid off, their attention turned towards vacations, bigger houses, and declaring that “austerity is over.” I read financial a nonsense every day and don’t think twice about most of it, but I wanted to stop and work through my thoughts on what aspect of the family’s story bothered me so much.
And then it hit me: The McDowell family could easily spend their time stockpiling wealth and building a sizable family treasury with only a few moderate tweaks in their lifestyle, but instead, they see the seduction of consumption as more alluring. The thing is, if someone would just shake these people and say, “You could be drowning in cash from your business holdings if you get a grip on yourselves and just save $500 per month”, they could avoid a lot of the pain and misery that they seem intent on following.
If you are capable of paying down $22,000 in debt in under a year or two, you are definitely able to save $500 per month. Imagine if they approached their debt-free life with the same spending intensity as they did their debt days. No, scratch that. Imagine if they had half the intensity towards saving money in their debt-free days as they did when they found themselves laden in debt.
Roth IRA maximums are currently $5,500 per year. Imagine if this family said, “Hey, we are going to save $500 per month. Every three months, we will buy $1,500 worth of a blue-chip stock. We will gradually buy shares in every blue-chip company we name, ranging from Coke to Pepsi to Exxon to Chevron to Disney to Hershey to Brown Forman to Nestle to Johnson & Johnson to Procter & Gamble to Visa to Wells Fargo to General Electric to Conoco Phillips to BP to IBM to Microsoft to Philip Morris International to Dr. Pepper to Colgate-Palmolive, and so on.”
If they did that for the next 35 years until they retired, they would easily create north of $2 million in wealth paying out somewhere around $80,000 or so in dividends. These people would be collecting $219 per day just for waking up in the morning, from the dividends alone—without touching the principal.
These people clearly have it in them: they paid down $22,000 in debt in 14 months. That means they were making debt payments of over $1,500 per month to wipe out their debts. That’s impressive as hell to me.
I just wish they channeled some of that energy into building wealth rather than eliminating the consequences of their bad decisions. If they tackled building wealth with 33% of the fervor they tackled destroying debt, they’d have a $2 million fortune by retirement. Instead, I had to read through this gawd-awful declaration of war on financial common sense:
“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 crazy thing about building wealth is that it does not take any herculean efforts to build it. You don’t need a $200,000 salary to get rich. You don’t have to invest in an early Apple stock situation to get rich. You just have to plug away at it, month after month. Everything I write comes down to saving a couple hundred dollars per month for a very extended period of time.
This family is so close—that’s the shame of it all. I wish they could see that if they took the energy they committed to paying down debt and spent just a little bit of that energy trying to build wealth, they could transform their financial lives. Those vacations they took about planning? They could use dividend checks to pay for them—no stress. But you have to invest first. The simple decision to have a couple hundred dollars taken out of their checking accounts each month could transform their lives—and be the difference between living solely on Social Security or collecting Social Security plus $1,000+ dividend checks from Coca-Cola, Exxon-Mobil, Johnson & Johnson, and the rest of the usual suspects.