Life is a Business – Chapter 43

A series of essays on the past, the present, and the future

This article could be condensed to only one sentence:

Long-term wealth and financial security is not about how much you make, but how much you spend.

That’s simply all it is.  Now, I’ll tell you how I figured it out at 18 years old, yet I still admit that I failed to always follow this rule myself, a mistake which delayed my family’s financial security by decades and potentially risked going back to zero, far too late in life to recover.

All of the intangible factors, attitudes, work habits and learning experiences we have discussed over the past six months are all about getting you into the game where the money resides… the rule stated above is how you hang on to it!  You must look at building wealth just like Jack & Jill’s little pail – if it was full of holes, they would have no chance of fetching a pail of water and getting any of it back to the cottage, whether they fell down the hill or not.  The only way you can get a bucket to fill is to have more water coming in than is leaking out. This is the simple arithmetic of finance, just like the reverse situation makes us gain weight and enlarge our belly buckets. Make sense?

Do you understand that 365 days a year, you will be bombarded with someone else’s marketing propaganda to let them get your money into their bucket!  The promised rewards for handing it over are rarely valid investments of your time, energy or hard earned cash. A large majority of wealth transfer is tied to your emotional and psychological needs, fears, wants and desires. Pay attention to all of the advertising you absorb each day and figure out exactly where you are in the food chain…Warren Buffet said: “Business is like a poker game; if you can’t spot the sucker at the table within five minutes…it’s you!”

There’s a difference between “spending” and “investing”, just as there is a difference between a “gamble” and a “risk”. It bothers me to put $100 out on a crap table in Vegas, but I don’t lose a minute’s sleep signing a million dollar note for an industrial machine. I have no control over the randomness of the dice, but have the ability to tilt the odds in my favor to make that machine investment pay off. I don’t advocate being tight and stingy, but just spend smart money as much as possible. You still have to live a normal life, but you don’t have to live the “Lifestyles of the Rich and Famous” if you haven’t earned and saved the money to live it without more debt. Our Dad admonished my brother John and me in our 20’s: “You boys have champagne taste and beer money”! It was true. Coming from not even having our own bicycle and Christmas being the saddest day of the year around our house, we were hell bent on getting the best of all the toys we could, as fast as we could. Debt did not scare us, for the worst that could happen was that we got busted back to the starting line…and we both had the confidence that we could hustle our way right back up…and we did, several times. Our philosophy is that you haven’t lost the war, as long as you are still alive. We’ll find a way to win, regardless of the pain and oblivious to the time it takes to succeed. Both of us luckily, ended up with wives who supported us, while also tempering our recklessness. I have learned that a little fear is a good thing, especially right before you leap off a cliff. I used to think I could probably fly if I had to, but age has clipped my wings! So, what’s the balance you must find for yourself?

Understand your tolerance for risk and never put yourself in a financial position that divides your brain and your heart of hearts. It raises the odds of catastrophic failure due to the fact that you cannot make the moves required to save the victory, or conversely, it will lead you to play recklessly and bust out. There is a reason that the casinos have so much money – they set the odds in their favor and understand that if you come with a $500 gambling budget, it is automatically theirs 99% of the time. Those free drinks served by buxom ladies are not free at all…but don’t you feel special with your player’s card and a coupon for the buffet?

In business and in life, never gamble more than you can afford to lose. Understand what starting over will be like and prepare your lifestyle and expectations to accommodate the situation, before you go all in.  Even then, keep a bus ticket home in the toe of your boot. Burn the following into your brain:

“Cash is King”

“He who has the gold makes the rules”

“Money is attracted to other money”

“A gambler’s money has no home”

As the dealer always says when you buy chips…Good Luck!

By Bill Hewgley