Enslaved by Consumption author, Dominico Johnston, sits down and discusses his newly released work. Engage your mind and your pocket book.
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.
- What constitutes a reasonable pull-back in the market? This is an essential question to be able to answer when identifying a good entry point into the market.
- How the current low rate environment will force more people into high-yielding securities, with or without tax increases.
- Why costs of maintenance and operations are so essential when determining whether or not that large ticket item is affordable. The costs go beyond what you see upfront.
- An updated portfolio performance table.
It pains me to hear people open up and discuss the debt they have incurred. The pain is not the result of angst or anger towards the person, but more a deep felt sorrow for the situation they are in. It’s comparable to seeing an animal stuck in a bog that continuously fights to free itself from the muck. As the animal fights to free itself from the trap it has found itself in, it either retards its own progress, remains stuck in its current state, or can only make very slow strides to stable ground.
Frivolous debt; that debt which cannot be leveraged for tax purposes or is not incurred for the generation of future wealth (e.g. A farmer taking out a loan at the beginning of a season.), represents a form of voluntary enslavement. Selling your ability to make future decisions freely may sound a little preposterous, yet many people every day willingly limit their freedom of choice because of an unquenchable desire to consume.
A troubling message has been echoing for years. It has been told over and over again that the individual consumer in society (U.S.) accounts for approximately 70% of measured GDP activity. This has led to individuals foolishly thinking that their unchecked consumption has a transcending virtue. Not only is their thirst for more stuff and entertainment being temporarily pacified, but they are also spurring the economy. Glory be to the consumer!
Your own fiscal health is primary. Going on a consumption binge in an effort to breathe life into a weak economy is secondary.
Without going into a discussion about limited resources and their economic allocation, consider where our man of consumption stands. Spending beyond one’s means is quite similar to eating beyond ones means. When a person regularly eats beyond their body’s needs, they will gain weight. For a period of time the increased amount of weight will be negligible. Some minor inconveniences may occur, but likely nothing to cause a serious shift in eating habits. Yet, the impact cannot be ignored. Whether it’s mobility, energy, health, or other measures of well-being, the extra weight is a form of baggage that is a hindrance.
Consumption via the use of debt is akin to adding extra body weight as the result of over eating. Debt is analogous to fat that weights a person down when considering future choices. It becomes a force that controls the person. The power of enslavement places the debt as the master and the debtor as the slave.
People incurring frivolous debts are living in a dream that they are soon to realize is a nightmare. The ability to consume today on the debt of tomorrow cannot be expected to exist in perpetuity. Once the line of credit is exhausted, the debt still lives. Do you want to live in a future where you serve yourself or a future where you have enslaved yourself to the debts of your past?
If you’ve ever looked at a population chart that lists age ranges from greatest and least within the U.S. (or other Western country), you’ll notice a noticeable bulge representing the group known as the Baby Boomers. Today we hear numerous concerns over the future prospects of runaway inflation. While inflation is a threat, given an emerging dependance on a loose monetary policy, it will have a hard time growing out of control in an environment where a significant amount of the population is reducing their consumption (Boomers).
The following link provides consumer demand curves across a myriad of economic activities. As you will see, the vast majority of these graphs demonstrate a decline in demand once a person enters their 50’s-60’s. The exception comes mainly in the area of health/wellness products and services.
Having a sizable portion of the population move into a period where consumption is reduced, is not an inflationary force. This is not to say inflation is not to be feared. It is simply to note that a strong current in the economy is pulling away from rapid inflation.
How will I become wealthy? (In terms of dollars.) For most of us achieving a certain level of wealth is a highly held goal. All too often though the goal is not thought of in terms of what I can control today, but instead in terms of what I will earn tomorrow. The thought process can be described as follows, “A future when I make X dollars is when wealth will arrive, while today it is unattainable.” Such a perspective is destined for perpetual clawing towards the mountain’s summit while perpetually backsliding downward.
Most people realize that it is much easier to say “yes” to our current desires than “no”. For those seeking to build wealth, it is vital that we are able to discern when we can say “yes” and when we must say “no”. If you cannot control your expenses, then all the income in the world will not bring you to your personal wealth summit.
Two options exist to provide you with the discernment necessary to know when to say yes or no regarding your spending habits. The first option is unavailable to most people. The option involves an almost innate regulator within oneself that has been carefully trained to recognize when you are on the path to making an unwise financial decision. In such a case, you are the guide and need no map to follow, since your senses are strong enough to navigate through the potential financial pitfalls that exist along the trail.
The second option is an option that anyone can partake in. The option involves the development of a monthly budget. The goal of a budget is to provide a planning mechanism that enables you to forecast income, expenses and savings in order to establish control and obtain the goals you seek to achieve. In a sense, a budget is the process of drawing the map to ensure that you know where and how you are going to get from where you are now to the place you want to be next week, month, year or decade. Budgeting is the tool that allows you to discern when you can say “yes” and when you must say “no” to the desire to purchase a good or service.
Ultimately, the question you must answer when considering how you will become wealthy is, “Do I really want to become wealthy?” Do I have the discipline and desire to build wealth or are my desires for current products and services more important? Remember, the concept of wealth is rooted in a long-term vision. Wealth is seldom built overnight and is sought as a state that will exist in perpetuity.
If you are serious about achieving a certain level of wealth, I would recommend you first define the level you seek to achieve, then evaluate where you are at in relation to the level you wish to obtain, and finally develop a long-term plan on how you will get from your present state to your desired future state.
With tighter inventories and fewer late-season sales expected this year, many shoppers aren’t waiting for new deals to come around, say experts. Indeed, more people started their shopping earlier this year to snap up sales: By late October, the National Retail Federation estimates that nearly 40% of shoppers will have already started their shopping. That’s 2 percentage points more than last year’s rate, a figure the industry group says has barely budged in years…READ MORE.
Do you ever think about money? I’m sure you do. What exactly is money? What are the green bills we entrust value to? To me money signifies time, labor and life. Whether I worked an hour and was paid $8 or I selected a stock that appreciated 20% over the course of a year, both incurred a certain amount of time and labor from my life. Therefore, the return I received was a culmination of time and labor, which took a fraction of my life to obtain.
In short, one primary reason I value money is because I value life. Money can bring wealth and with that wealth one can command a degree of purchasing power. That power allows one to obtain a good or service because of the reward received from the exertion of physical and/or mental capital.
My thoughts about money are the cause of anguish that is incurred when I unwisely spend money. When buy an item that I really didn’t need or could have obtained for a small amount of money, I have a negative reaction. It’s not just that I wasted ‘money’, but I also time, labor and life. If you look at your spending in this manner, you’re dealing with a very serious matter. Your spending habits take on a much deeper meaning.
I know most will see my views here as a little extreme and I accept that fact. Yet, if we were to collectively shift a degree or two towards the view that I hold, I believe our lives and our society would be a much better place. For one, consumption isn’t happiness. A certain degree of necessities are needed, but one they are fulfilled, you do not need to constantly grow your pile of things to maintain satisfaction in life. Secondly, financial independence, whether it’s being free of debt or actually living off of your investments, is liberating. Thirdly, having a deeper understanding and appreciation for money can lead to a greater respect for those around use and their possessions.
I don’t ever recall being asked to seriously think about what the money I make, spend, invest and hold means to me, but it has been something I’ve thought about for years now. It might be because people challenge me at times in the way I spend (or don’t spend) money or it might stem for some other source. Either way, I believe it’s a very helpful exercise for anyone to engage in.
Economists predict that American households will have to contribute an average of $1,398 per year to fulfill pension promises, according to a new study…READ MORE
My Take: If the graph below and the information in the linked article are correct, then we’re most likely going to have some serious adjustments in the country sooner than later. Assuming pension problems create some serious problems for State governments, expect a period of time short or extended where heavy amounts of uncertainty exist in the market. Uncertainty makes people nervous and thus brings about sell offs.
Remember to continue to think defensively when investing. I’m not a chicken little type, but it’s important to have a plan for good and bad weather. How will you respond if the market takes a sharp dive? Where will you want to look for shelter? Where will you want to look for oversold opportunities?
…the biggest single thing the federal government does these days is … cut checks.
Lots and lots and lots and lots of checks that go to individual citizens — $2.3 trillion worth last year alone.
In fact, according to a table buried deep inside the little-noticed Historical Tables volume of the White House’s 2012 budget, these “direct payments to individuals” accounted for more than two-thirds of federal spending in 2010. That’s a post-war high…READ MORE.
My Take: Very interesting article. Since tax season is upon us, it’s probably a good idea to learn/think about where your tax money will be going.