Pillar #4: Consider the True Cost, Not the Monthly Payment
This is tough when you have the hots to buy something. If you cannot purchase something outright, its true cost includes the price of renting someone else’s money, plus the depreciation.
Thinking in terms of monthly payments can keep a person in economic slavery for life. We’ve all seen folks get a nice raise and immediately buy more cool stuff because they now can afford more monthly payments. This is nothing more than a treadmill of earning income and making payments, with little chance of real wealth accumulation.
We’re investors in Lending Club and see hundreds of loan applications from people who’ve finally realized that financial independence requires accumulation of wealth, not stuff. They borrow money to consolidate their debt, cut up their credit cards, and try to get back on track. This can easily take 5-10 years for folks with massive debt. If they finally get it at 50, they may have to set retirement back a full decade or more.
Pillar #5: Wants Are Not Needs
Wealth accumulation and financial independence must trump the “need” for stuff. Throw off the economic shackles! Financial freedom is attainable if you free yourself from stuff.
Pillar #6: You Are Responsible for Your Own Behavior
If you’ve ever been the parent of a teenage driver, at one point or another that teenager likely received a speeding ticket. The commonsense solution: make the teenager pay the ticket and any increase in the insurance. He who creates the problem should create the solution.
Pillar #7: Behavior Has Both Short- and Long-Term Consequences
By our 50th class reunion, we’d lost many classmates to lung cancer. These were the same kids who’d laugh as they lit up a cigarette and call them “cancer sticks.” They were quite right. Incredibly, many of them, knowing the risk, smoked right up until the end; they didn’t change their behavior and suffered the consequences.
It’s not like big spenders don’t know the consequences of not saving; they’ve heard the message before. Yet they continue the same behavior and end up with a predictable result: little to show for their efforts at the end of their working career. Some people justify their behavior by thinking they can live on Social Security post-retirement. The few I know who are in that situation are not financially independent; they’re back working at lower-paying jobs they can ill afford to lose.