2610 The ant and the grasshopper.

Saturday, October 3, 2009

"The rich get rich because they keep doing the things that make them rich.

The poor get poorer, or stay poor, because they keep doing the things

that make them poor."

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The above quote was found in a comment on Scott Adams' blog.  The commenter didn't remember where he got it, and it doesn't turn up anywhere else in a Google search.

It's absolutely true in my experience.  As others have pointed out, there seems to be a rich-mentality and a poor-mentality.  People with a poor-mentality who get windfalls spend or lose it within a few years.  They make short-term decisions, and pretty soon it's all gone, frittered away.  People with a rich-mentality make long-term decisions.  They develope a habit of using what they have to grow more. 

It's not a matter of where we start out.  Wealth inherited is often gone within two generations.  It has more to do with a frugal mindset, living within one's means, planning for the future, and/or not having a sense of entitlement.  It's tied up in our definition of what makes us happy, and whether we need immediate gratification, or whether we are willing to accept a lower level of happiness over a longer term.

It's the fable of the ant and the grasshopper.

If you give a man with a poor-mentality enough money to buy thirty steaks, he'll buy thirty steaks and eat like a king for a month, and then have nothing but a memory of short-term comfort and happiness.  If you give a man with a rich-mentality enough money for thirty steaks, he'll buy chicken, ground beef, four steaks (one a week), a few shares in a mutual fund, and put the rest in an education fund or toward purchasing a rental property.  Building long-term comfort and happiness.

I've confessed to liking to look in people's windows as I drive past houses at night.  I am often amazed at the number of huge flat screen TVs dominating the living rooms of modest cottages.  I don't understand that.  Who needs something that big and expensive, that isn't going to do anything but depreciate?  I have friends who spend every penny they get with no apparent thought of the future.  Two weeks ago I had a small spat with a dear friend over his frittering away a windfall.  You can't have champagne tastes on a beer budget, or pretty soon you won't be able to afford beer (and don't expect me to feel sorry for you when it happens).

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My father was career Air Force, an officer.  He got flight pay beyond his regular salary, but my parents never had any savings to speak of.  The money came in, and the money went out.  After retirement, my mother marveled at other military friends who bought nice retirement houses in nice places.  She didn't understand how they could afford it.

The other folks moved every few years, just as we did, but when they moved, they sold the old house and bought a new one, always at a profit.  My parents always rented.

Renting is easy and convenient, but rent money is lost money.