The unquenchable quest for material wealth and perceived status more often than not creates an abysmal situation. The erosion or negation of savings and the reliance on debt to sustain spending habits creates a cycle where planning for the future becomes impossible and the fixation on getting by day-to-day is heightened. Such situations are not only bad for the individuals and families afflicted, but also for society as a whole.
To understand the dilemma we face, it is important to understand that two warring philosophies are in play. One philosophy perceives the physical demonstration of material wealth through things (cars, homes, clothing, vacations, other recreational toys…etc.) as the primary indicator as whether one is wealthy. The other philosophy perceives material and non-material investments and resources as the primary indicator of wealth. The former view has overtaken much of society as truth. At the base of this philosophy is that the greater purchasing power one can exhibit, the greater wealth one must hold.
Is purchasing power a reasonable measure of one’s wealth? The answer is yes and no. If the world was ending in a month and everyone had equal incentive to leverage their ability to consume goods and services to the highest degree, then purchasing power would be a great way to differentiate degrees of wealth from one another. Until this end of the world scenario is upon us, the ability to know the finances of a person or family to such a degree as to understand how much fiscal strain a purchase has caused is a pipe dream. Purchasing power would be a great measure, but it is only a guessing game once you get outside of your own finances.
The ultimate problem that comes from fixating on purchasing power is analogous to being in love with a house that has a shoddy foundation. At your fiscal base, do you have the foundation to sustain what you currently have and what you want in the future? This question is paramount, yet the fixation on purchasing completely bypasses the thought of sustainability and growth.
Constantly spending all or most of your disposable income creates a situation of dependency. Using debt to increase your ability to spend creates a situation of servitude. Financial freedom becomes a filthy concept in either situation because it is in direct opposition to the idea of purchasing power as the measure of wealth. It is comparable to the way selflessness and vanity seem to stand juxtaposed to one another.
The alternative to purchasing power as a wealth indicator comes from investments. Investments are at the base of lasting systems that generate wealth. In this context, investments mean human capital gained through education and experience, savings and equities, land and other items that appreciate overtime and can be easily sold. This capital doesn’t eat, but feeds its host whether through regular wages, dividends, rent income, or other means. In contrast to the former philosophy, this personal finance system is geared towards sustainability and growth.
Each of us has a choice in life. We can either strive to be fiscally independent or dependent. Our philosophy has a lot to say in shaping the path we choose. Collectively, the path we choose will have ramifications. More dependency, whether on public or private streams of support, means something must be given up. What’s the opportunity cost? If we must depend more on the public dole or on private loans, then the capital that is used to fund such initiatives cannot be used for the thousand other possibilities that exist. The greater the dependency, the greater the ultimate drag created on the individuals life, family and cumulatively society, as well.
We don’t live in a vacuum. Bad personal financial choices are almost never isolated events, as was all too apparent in the last decade’s economic collapse. If all we can do is focus on how much we can spend given today’s amount of income we earn, then we’re doomed to be enslaved by our consumption. If we can see beyond this quick-fix high, then we will mature beyond our current state, negate a number of preventable problems in our future, and open more doors of opportunity in our own lives than our prior myopic self could image.