Wednesday, August 8, 2012

Act Like A Billionaire - Think Long Term

The following is a conversation I witnessed while riding in the elevator of my employing institution:

(To set the scene, I was standing next to two women in their mid 50's).

Woman 1: Boy, I am really struggling for money.
Woman 2: Tell me about it!
Woman 1: I only have $100 dollars in my checking account and payday is still a week and a half away.  Oh well, at least tonight I'm getting a pedicure and manicure done.  It'll cost about $50.

This conversation was taking place while both of them had venti frappucinos from Starbucks which cost around $5 a piece.

Inequality hasn't widened if you look at consumption rather than income, some researchers argue. The poor have even seen their standard of living rise in recent decades.
If this conversation didn't send shivers down your spine, then you may need to readjust your mindset.  From my perspective, I saw two people discussing their financials woes, all the while with the means to save themslves. Did she really need that pedicure and coffee?  Who am I to judge, but this whole scenario is a great segway into one of the main reasons why the poor stay poor and the rich get richer.

What do Billionaires do that the rest of us don't, well, for one thing, they know how to think in the long term. I was once taught that the economic classes can be broken up into the time frames they focus on.

The poor think only about today and tomorrow.  Much of this is brought on by the problems faced with not having enough funds to potentially feed one's family.  With so many social programs in today's world, food shouldn't be so much of an issue.  I direct you to this article which demonstrates that the "poor" have just as many flat screen TV's in their house as any wealthy family.  Is this considered poor, or are they leveraging debt?  Probably a little bit of both.  Thinking only in terms of today and tomorrow does not lend well to saving and being financially responsible.  The immediate pleasures of spending today are what drives this economic class.

The middle class tend to think in the short run (a couple months or so).  They usually have enough money to get by for a couple months, but generally don't have a well established savings or investment account.  They are content to save around 10% of their income in a 401(k) and work until they're 65.  Early retirement is not even a consideration amongst  them and they are perfectly fine buying more things to impress the neighbors.

Finally, the super wealthy think in the long term (years or decades).  They buy stocks to hold onto for a decade at a time, or invest in companies that might not pay back for 4 years or more.  Much of this attitude is coupled with the security that they will have enough to pay the bills, however there is some real practical skills we can learn from this mindset.  Retirement might seem like a far away prospect, but it will come sooner than you think.

The lesson of today's message is that the decisions you make today as far as saving and investing will set you down a road that will define which class you stay in for the rest of your life.  I'm a strong believer that this nation gives each of us the opportunity to make the most out of our situation and pull ourselves up by the bootstraps.  Identify your situation, how you can improve it, and start thinking in the long term.  This fundamental shift in your mind will benefit you greatly throughout your life.

Some practical long term steps you can do today include:
1.) Create long term financial and personal goals.
2.) Review periodically and stick to your goals.
3.) Invest in the long run, maximize your 401(k), start an IRA, and other savings accounts.
4.) Live below your means and save at least 20% of your income
5.) Constantly seek education in financial matters.  Nobody has this figured out completely so you will always learn more.

These simple steps will get you back on the right footing nomatter what age you might be.

Wonderful Moment of the Day: Realizing and being thankful for not yearning for a pedicure or manicure.

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