A Fool and his Money are Soon Parted

It’s a tradition for bloggers to come up with fake stories to trick everyone on April Fool’s Day.  Instead, I have decided to explain how most Americans are being tricked out of their paychecks.  They may work hard their entire lives, earn millions of dollars and wind up with nothing.  So, I started to think about the old saying penned by Thomas Tusser, “A fool and his money are soon parted”.  And, I felt I should explain this scam to my readers, in a way that may help them to avoid playing the fool.

Trick 1 – Attaching our Income

Deyu the Magician

Photo by Chubstock

I have done a lot of foolish things in my life, including most of the tricks listed below.  But, the one smart thing I have always done is to save some of the money I have earned.

Way back when I was 21 years old, I started an automatic investment into a mutual fund.  I officially stopped spending everything I earned.  By keeping a little bit of my paycheck each month, I have never since been parted from all of my money.  Of all the concepts of personal finance, this is one of the simplest and one of the most effective.  This is also where most people fail. 

There is a reason why saving is so important and should be considered before everything else.  No matter what else we do financially, if we fail to save any money, we become wage slaves.  We work only for the benefit of others.  We live paycheck-to-paycheck, with no financial cushion or peace of mind.  And, we never accumulate wealth or free ourselves from the chains of dependence.  Our money is our future.  And, we need to take control.

Check out:  Pay Yourself First

Trick 2 – The Debt Treadmill

Debt is an insidious force that undermines our finances.  It’s like driving our cars with the parking brake engaged or carrying that extra 20 pounds around our waists.  It compounds upon itself and grows like a tumor.  It erodes our income and stunts our savings.  Debt is not a privilege; it’s not a convenience; and, it’s not a benefit.  It is a clever mechanism to siphon our paychecks with interest and fees.  It’s a profitable new way to sell us the things we can’t afford, at prices we shouldn’t pay.  Debt is the enemy of wealth.  It should always be avoided for consumer items.

It’s very easy to get caught up in the cycle of debt.  It’s something I have struggled with for most of adult life, despite being successful in the other areas of finance.  I have always felt I had it under control, because I could pay it off at any time, with the money I have saved.  So, I let it hang around.  This was a huge mistake that has cost me thousands of dollars in interest and opportunity.  Last year, I began a crusade to eliminate my debt.  And, I’m one year away from paying off my credit cards.  I’m six years away from paying off my house.  Then, I will finally be debt-free.  I dream about owning my paycheck, instead of owing it.

Check out:  Stop Living Paycheck to Paycheck

Trick 3 – The Lure of Consumerism

What do people really need?  Everyone needs food, shelter and clothing to survive.  Most Americans need income and transportation to obtain these necessities.  The list of things we don’t “need” is endless.  A few years ago, nobody “needed” half of the gadgets we have today.  Twenty years ago, we lived in smaller houses, without SUVs.  These things have all been presented as a “need” by advertisers.  Consumers just bought into the fantasy.  Most of the shiny new things we buy are simply a distraction from what is truly important in our lives.

If you are debt-free, saving money and your income is secure, then buy what you want and can comfortably afford.  Life is for living and money is for spending.  You only get so much of each and they are both precious.  But, if you are carrying debt, failing to save or just accumulating too much stuff, then ignore to the advertisers.  Recognize consumerism for the scam that it is and make wiser choices with your life and your money.

Check out:  Life is about Choices

Trick 4 – Fear, Uncertainty & Doubt (FUD)

Marketers learned a long time ago that fear is a very strong motivator.  And, they have played upon our fears to sell us most of the things we see advertised today.  Will you get the job if you have gray hair?  Will you get the promotion if you don’t drive a luxury car?  Will you get the girl or guy if you don’t use the right deodorant?  Will your wife nag you if you don’t buy her the diamond pendant?  Once you analyze the hidden message inside of commercials, they are almost laughable.  But, they are also effective and therefore profitable.

I realized in my early 20s that I had a very acute fear of financial failure.  I was afraid I was going to lose my car and my apartment, then have to move back home.  This fear was caused by a low income, unnecessary expenses and some poor decisions.  I didn’t realize at the time, that I could drastically reduce the possibility of failure (and the associated fear) just by saving money.  And, I could eliminate the stress of losing my car, just by avoiding payments.  Once I figured this out, I stopped living in fear.

The Bottom Line

The bottom line is that we can’t spend our way to happiness.  It doesn’t come from jewelry, clothing or the latest electronic gadgets.  It doesn’t even come from a new luxury car or a bigger house.  Happiness comes from experiences and relationships.  It comes from controlling our destiny and living our dreams.  In order to accomplish the things that will truly make us happy, we need to manage our finances.

“There are two fools in this world. One is the millionaire who thinks that by hoarding money he can somehow accumulate real power, and the other is the penniless reformer who thinks that if only he can take the money from one class and give it to another, all the world’s ills will be cured.”

Henry Ford – Founder of Ford Motor Co.

Recommended Reading

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8 comments to A Fool and his Money are Soon Parted

  • Sage words, Bret.

    I have quite a bit saved up, but I still find myself living a bit in fear.

    My biggest fear is the fear that my retirement savings are going to eventually be rendered essentially worthless by high inflation brought about by the USA’s massive deficits.

    Sad but true.


    Len Penzo dot Com
    .-= Len Penzo´s last blog ..Black Coffee: My Favorite Blogs, Money News & Opinions #41 (Guess Who Joined the Yakezie Edition!) =-.

    • Len,

      I came to this exact revelation about five years ago. I had a financial plan of saving a million dollars, paying off my house and living off the interest. But, even before the recent crash, it became obvious this plan had flaws. It would leave me vulnerable to interest rates, inflation and market collapses. Everything that has happened in the past couple of years has definitely reinforced my notion.

      What I decided to do is to diversify both my portfolio and my income. I would like to pick up another property or two to protect me from inflation and to provide income in my retirement. Plus, I want to develop a second income of at least $2-3K per month. This would allow me to ride out market swings, without having to sell securities when it’s down. No plan is perfect, but I feel more comfortable than I did before.

    • Len,

      I also wanted to address the issue of inflation. Long-time readers know I can’t resist the temptation to play Economist. My personal opinion is that inflation is a very real problem, that is being systematically under-reported by our Government. The 1-2% rate of inflation that is reported is utter nonsense. The “core rate” is a joke and the government changed the way it calculates inflation to reduce the rate. They did this because they couldn’t afford the bond interest and COLAs for the true rate. I suspect the real rate of inflation averages around 5%.

      However, I don’t think there is a high probability of hyper-inflation. There is a slight possbility, but not a high probability. I think we would run into other serious problems, long before we would reach the monetary status of Zimbabwe. Despite the financial disaster that is the Obama Administration (and the Bush disasters that preceeded it), I think this will wind up like the Carter administration. The economy will get to the point where everyone is aware that it has to change and then we will take care of it. I think we are getting there rapidly. Now, all we need is another Ronald Reagan.

  • I truly hope you are right on your inflation prediction, Bret – still that will be pretty painful. I remember my savings account getting 18% interest as a teen in the late 70s. That was fine for me because I was still being supported by my family, but the high inflation that was creating that savings rate had to be murder on my folks and everyone else who was trying to eek out a living.

    All the best,

    Len Penzo dot Com
    .-= Len Penzo´s last blog ..Expedia, Orbitz, Priceline and Others: What’s the Best Travel Search Engine? =-.

    • Len,

      I clearly remember the days of double-digit inflation and mortgages, which is why I referenced the Carter era in my post. Inflation was bad, but not quite as bad it would seem. Bonds and bank accounts paid high interest to compensate. And, real estate kept pace with inflation, which helped to offset the high mortgage rates.

      Not to alarm you, but in my opinion, inflation could become a much bigger problem since the Government changed the calculation methods. For example, the CPI was supposed to have risen 4% in 2008, but this would have been over 11%, based on the methods used in the ’80s. In the mean time, bonds and banks were only paying a couple of percent interest.

      The inflation rate is a huge lie, second only to pension solvency.

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