Math Isn’t Subjective (And That’s a Good Thing)
In our hyper-consumption culture today there are a lot of people looking for excuses as to why they are NOT financially independent. These excuses allow the majority of our society that is financially dependent on a job (i.e., trapped in work) to avoid feeling guilty for gluttonous consumption and financial irresponsibility. It is a lot easier to conclude that you are a victim of your circumstances instead of taking responsibility for your financial mistakes. Data published 20 years ago in a book written by Dr. Thomas Stanley titled The Millionaire Next Door, however, provided objective empirical evidence supporting the conclusion that you don’t have to have a huge income or inherit a fortune in order to accumulate wealth in America—and inadvertently eviscerated most Americans’ excuses for their financial dependence. The book and supporting data accumulated over decades of research regarding the affluent in America showed that driving expensive luxury cars and living in upscale houses does not prove that you are wealthy—in fact, it often proves that you aren’t (and maybe never will be). What Dr. Stanley’s research proved instead was that you simply needed to work hard, spend less than you earn, and wisely invest the rest in order to gradually accumulate significant wealth over a lifetime.
The book was a New York Times bestseller at the time of its publication in 1996 and thereafter, and even today continues to be a top seller in Amazon’s Wealth Management category. Notwithstanding this wild success, the thesis of the book drew vicious criticism in 1996 that continues today—criticism by people, I suspect, that view the book’s thesis and conclusion as an indictment of their lifestyle. Today some have sought to discredit this research and its shockingly simple yet effective conclusions based on environmental factors that are beyond the individual’s control: healthcare is too expensive! College is too expensive! Housing is too expensive! We can’t save anything! But while some of these underlying macro-economic trends have undoubtedly moved in an unfavorable direction for the individual consumer, these conditions do not change the math of the basic wealth equation (no matter how much we may want them to). Individuals not interested in making excuses and in achieving financial independence have found ways to navigate through these challenges in ways that don’t sink their financial ship. They treat college costs, housing costs, and healthcare expenses as just another financial challenge to be responsibly managed and overcome. So, just by way of example, if your dream job is to be a freelance writer earning $35k/year, you might decide NOT to go to Columbia University and finance three degrees with student loans thereby racking up hundreds of thousands of dollars of debt. Getting that decision right does not require you to be an economist or an incredibly savvy personal finance maven; you only need to have a little bit of common sense and just a dab of personal responsibility.
At the end of the day, no rational thinker can argue with the arithmetically unavoidable conclusion: if you work hard, earn a good income, spend less than you earn, and wisely invest the delta, you will accumulate financial resources over time. That math works. Without fail. Every time. Rather than making excuses to justify financial irresponsibility and profligate consumption habits, own your personal financial history and be purposeful in your earning and spending behaviors in the future. That decision will set you down the path of financial freedom and maybe prevent you from becoming trapped in work.
Footnote: Here’s another piece attacking the thesis of The Millionaire Next Door on the basis of … well … I can’t quite tell what the argument is. Let me know if you can decipher it.