Spiraling Up (eBook)

Chapter 1.
Why Financial Success Is So Elusive

In October 2005, Lara and Roger Griffith bought a lottery ticket and won the equivalent of $3.6 million in today’s dollars. Roger worked as an information technology manager, and Lara was a performing arts teacher at a local college. While both were well-educated, neither of them had any idea how to manage such a large sum of money.

In an interview published in the Daily Mail years later, Lara said, “We were so desperate not to mess it up, and it’s very difficult when you have advisers coming to you in their shiny suits and flashy cars saying, ‘I’ll look after you, trust me.’ Who do you trust?”

She then added, “We were told not to put all our eggs in one basket, so we decided to invest in property and business. We thought we were doing everything right.” They invested in two rental properties, the stock market, and a beauty salon.

However, after Roger quit his job, they bought their dream home for about $1.6 million, along with a brand-new convertible Porsche and Lexus SUV. They enrolled their two daughters in private school at a combined cost of $40,000 per year. They also started going on shopping sprees for jewelry and designer clothes, and they embarked on lavish first-class vacations to Dubai, Monaco, and Rome.

Five years later, in 2010, as the economy was just starting to recover from the global financial crisis, their beauty salon was still hemorrhaging money. Then, their dream home was devastated by a fire. Because they were underinsured, they had to pay for temporary accommodations for the seven months it took to repair it.

Their poor investment decisions, overspending, and failure to manage risk resulted in them losing every penny of the $3.6 million within six years.

In many of the “riches to rags” lottery stories we hear, we often assume that the people who lose their lottery winnings are unsophisticated or uneducated. However, this story illustrates how anyone is vulnerable to those losses.

Lara and Roger were intelligent, educated, and were (at least initially) sincerely committed to making the money last. They should have been set for life. How could a couple with all of those advantages fail so spectacularly after receiving such a windfall?

This leads us to the larger question: if we all say we want financial success, why do so few of us ever actually achieve it?

Unfortunately, this disconnect exists for numerous reasons, including consumer culture, the media, and social media. It’s also challenging to overcome instant gratification and lifestyle creep in an era when pensions are going away and we are increasingly responsible for our own retirement savings. These factors, especially when combined with our own financial self-limiting beliefs, can sabotage our financial success.

Programmed to Consume

The fact is, we are practically programmed from birth to consume at, if not beyond, our means. All media, including newspapers, radio, magazines, and television, have business models built on advertising. This business model only works if they can draw more viewers, digital marketing impressions, and viewing hours, and if those viewers then buy the advertised products. Buying more and more is good for the media, their advertisers, and the brands themselves—but it’s not good for your net worth or financial well-being.

This is all powerfully reinforced by television and film consistently correlating your self-esteem with how much stuff you accumulate and the prestige of fancy homes, racy cars, exotic travel, and other luxury goods.

Consumerism is also emphasized through endless testimonials and endorsements by celebrities we admire, as is routinely seen in advertising and social media.

In the newest iteration, social media influencers drive their followers to consume. The primary qualification of these influencers is often simply their follower counts. Most have no actual expertise in the areas they promote. Yet they flaunt—and the advertising industry promotes—designer clothes, indulgent spas, extravagant vacations, luxury cars, pricey cosmetic surgery, and flashy jewelry and accessories. Then, legions of followers go out and buy them like preprogrammed robots.

Regrettably, I’ve been guilty of this myself. Have you ever paid full retail price for a small $500 handbag for your significant other or yourself? Ugh—not an experience I plan to repeat.

The Griffiths also fell into this trap, only to learn that unconscious spending leads to an empty feeling and stress. When asked about her penchant for Louis Vuitton handbags, Lara Griffith said, “Actually, it didn’t feel so fabulous to be able to pay for whatever we wanted. We felt scared. You are constantly thinking, ‘Is this wrong? Will we lose it? Is this the right decision to make? How long will it last?’ We were always stressed.”

This dynamic of conspicuous consumption, now deeply embedded in the American psyche, is exemplified by the selfie culture. Armies of consumers are devouring these items, but many don’t have the discipline to delay gratification for them, choosing instead to rack up credit card debt and postpone saving.

The real tragedy here is that few of these luxury goods make their owners happy for more than a day, and even then, they’re not as happy as they would be having a larger cash cushion in the bank and a well-funded plan for a comfortable retirement.

In fact, the empty feeling that typically follows extravagant purchases only fuels the next one. But the siren song of rampant consumerism is extremely potent.

How many TV and movie characters or influencers do you ever see focusing on saving and investing for retirement? Probably none, because retirement is 20 to 40 years away for most of these characters and deemed boring.

Most people wish they could save more, have a well-funded retirement plan, and have less junk overflowing in their closets and garages. It’s just not easy to get there when they’re being bombarded by highly sophisticated consumption and marketing messages around the clock.

For most, 90% of the challenge to live within one’s means, not overspend, and follow a disciplined savings and investment regimen is not an inability to do things like setting up automatic monthly transfers into their savings and investments. It is an unwillingness to give up the feelings, the dopamine hit, and the ego boost from consuming grown-up toys, overspending on luxuries, and planning over-the-top vacations to impress friends on social media.

But once one sees the bigger picture, instead of the transitory illusion of happiness that comes from buying more stuff, it becomes nearly effortless to align financial values and behaviors.

Instant Gratification and Financial Literacy

The ethos of the Greatest Generation, which sacrificed at home and overseas to win World War II, is steadily fading. Younger generations have increasingly learned to pursue instant gratification over the delayed rewards of pursuing loftier goals.

Schools don’t teach instant gratification, but young adults learn it by example, through the media, and at home. It may be difficult for them, therefore, to delay gratification for long-term goals, such as saving for retirement, when their role models overspend and live on the financial edge.

A general lack of financial literacy is also a challenge, making it hard for many to understand how today’s minor sacrifices can lead to much better future outcomes. For example, the small investments made consistently when a person is young lead to a vastly larger nest egg in retirement. Schools don’t teach even the most basic personal finance concepts, and we get mixed messages from friends, the media, and parents, very few of whom seem to have it figured out.

Social Comparison and Lifestyle Creep

Achieving financial success is even more complicated if you define success in terms of others’ expectations. This is a recipe for frustration because you might be comparing yourself to someone who inherited money or had some type of a head start that you didn’t.

It may sometimes be better to be lucky than good, but as we saw with Lara and Roger Griffith, even multimillion-dollar lottery winners can end up flat broke in only a matter of years. Believe it or not, roughly 70% of people who win a lottery or get a big windfall end up bankrupt in a few years, based on research from the National Endowment for Financial Education. Many of these bankruptcies are undoubtedly due to spending in a way they think wealthy people should spend.

We’ll explore the benefit of having a wealth mindset and prosperity consciousness in the principles section later. For now, just remember that the only measure of success that matters is what’s important to you and whether you’re moving toward goals that are in alignment with your values on a schedule that suits you.

Even those who are financially secure have to be vigilant for other reasons. Lifestyle creep makes financial success a moving target. This phenomenon often happens when you receive a pay raise—you have extra money, which leads to increased spending to buy the next luxury good or service on your list. The Griffiths initially celebrated their lottery win sensibly with takeout Indian food and a bottle of champagne, but after they received the money, their purchases rocketed out of control.

For many Americans, spending more because of lifestyle creep means they find themselves living paycheck to paycheck again, which...