on the amount deducted from your wages for Social Security tax,
income
you never received because it went directly to Social Security through
withholding.
Going back to the young couple, as a result of their incomes increasing,
they decide to buy the house of their dreams. Once in their house, they have
a new tax, called property tax. Then they buy a new car, new furniture, and
new appliances to match their new house. All of a sudden, they wake up
and their liabilities column is full of mortgage and credit-card debt. Their
liabilities go up.
They’re now trapped in the Rat Race. Pretty
soon a baby comes along
and they work harder. The process repeats itself: Higher incomes cause
higher taxes, also called “bracket creep.” A credit card comes in the mail.
They use it and max it out. A loan company calls and says their greatest
“asset,” their home, has appreciated in value. Because their credit is so
good, the company offers a bill-consolidation loan and tells them the
intelligent thing to do is clear off the high-interest consumer debt by paying
off their credit card. And besides, interest on their home is a tax deduction.
They go for it, and pay off those high-interest credit cards. They breathe a
sigh of relief. Their credit cards are paid off. They’ve now folded their
consumer debt into their home mortgage. Their
payments go down because
they extend their debt over 30 years. It is the smart thing to do.
Their neighbor calls to invite them to go shopping. The Memorial Day
sale is on. They promise themselves they’ll just window shop, but they take
a credit card, just in case.
I run into this young couple all the time. Their names change, but their
financial dilemma is the same. They come to one of my talks to hear what I
have to say. They ask me, “Can you tell us how to make more money?”
They don’t understand that their trouble is really how they choose to
spend the money they do have. It is caused by
financial illiteracy and not
understanding the difference between an asset and a liability.
More money seldom solves someone’s money problems. Intelligence
solves problems. There is a saying a friend of mine says over and over to
people in debt: “If you find you have dug yourself into a hole… stop
digging.”
As a child, my dad often told us that the Japanese were aware of three
powers: the power of the sword, the jewel, and the mirror.
The sword symbolizes the power of weapons. America has spent
trillions of dollars on weapons and, because of this, is a powerful military
presence in the world.
The jewel symbolizes the power of money.
There is some degree of
truth to the saying, “Remember the golden rule. He who has the gold makes
the rules.”
The mirror symbolizes the power of self-knowledge. This self-
knowledge, according to Japanese legend, was the most treasured of the
three.
All too often, the poor and middle class allow the power of money to
control them. By simply getting up and working harder, failing to ask
themselves
if what they do makes sense, they shoot themselves in the foot
as they leave for work every morning. By not fully understanding money,
the vast majority of people allow its awesome power to control them.
If they used the power of the mirror, they would have asked themselves,
“Does this make sense?” All too often, instead of trusting their inner
wisdom, that genius inside, most people follow the crowd. They do things
because everybody else does them. They conform, rather than question.
Often, they mindlessly repeat what they have been told: “Diversify.” “Your
home is an asset.” “Your home is your biggest investment.” “You
get a tax
break for going into greater debt.” “Get a safe job.” “Don’t make mistakes.”
“Don’t take risks.”
It is said that the fear of public speaking is a fear greater than death for
most people. According to psychiatrists, the fear of public speaking is
caused by the fear of ostracism, the fear of standing out, the fear of
criticism, the fear of ridicule, and the fear of being an outcast. The fear of
being different prevents most people from seeking new ways to solve their
problems.
That is why my educated dad said the Japanese
valued the power of the
mirror the most, for it is only when we look into it that we find truth. Fear is
the main reason that people say, “Play it safe.” That goes for anything, be it
sports, relationships, careers, or money.
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