A big piece of the wealth picture is how much of our income (…or credit) we spend. In order to accumulate wealth a portion of our income must be stashed away in savings/investments that will hopefully appreciate in value, while the remaining piece is spent on consumption. Typically we tend to put the consumption piece first, but that’s the basic idea.
I grew up as one of five kids in a middle-class family. My parents were (and still are) extremely frugal when it came to most purchasing decisions. They always bought used cars and drove them into the ground. They rarely purchased anything at the grocery store that wasn’t on sale (in fact one of their better stories involves a fellow shopper mistaking their cart for the store reduced cart) and hardly ever splurged on themselves. However, they spent big on the important things. They bought a house in a nice neighborhood and quickly paid it off. They made sure the kids played whatever sport we wanted and always came to watch, even when we were terrible. They paid for the majority of our post-secondary education allowing us all to start careers almost debt free. While it was a relatively modest upbringing I know I was extremely spoiled to have parents that placed more weight in debt-free education for their kids than a new luxury sedan. As I’ve gotten older I appreciate these things a whole lot more and can understand why we drove around in a rusted station wagon that smelt like seafood inside.
It’s easy to get caught up in the consumer buzz. We look at neighbours or friends with new cars and stuff and think we should be entitled to the same or better. With extremely low interest rates consumer debt has risen to record highs in Canada over the last few years. According to the Huffington Post, the average Canadian had over $27,000 in household debt in 2013 (does not include house mortgages). Spending above your income is a sure way to depreciate wealth.
I’ve always had a conflicted relationship with spending. From an early age I can remember the feeling of anxiety of whether I had enough money for candy when approaching the corner store checkout to buy something. (I still get like that sometimes when buying beer) My main concern has always been “do I have enough”. As I’ve gotten older I don’t get that anxious feeling as much and the main reason is I know where I stand financially. I can understand the apprehension a lot of people feel when worrying about their finances. It’s terrible not knowing “if I have enough”.
At the end of the day every household needs to determine their priorities to create a financial plan that will best help them meet those goals. If the priority is 3 luxury vehicles, a cottage in the Hamptons and to retire at 40, there had better be some serious earning power. It is often far easier to curve grand perceptions and spending habits than it is to increase earning potential. As I grow older I’ve found that this approach is often much more satisfying than the inverse.by