What is the biggest threat to your wealth? You!
I work in IT, and anyone who has worked in IT or a similar field will tell you that if you ever want something to be done reliably, predictively and repeatedly.. you write a script to automate the action. Computers are fantastic devices; You program in what you want it to do and it (more or less) does as it’s told. A computer never gets bored, won’t be distracted and most importantly; won’t give in to irrational self entitlement.
Humans however are not machines. And its almost always our human characteristics which have a negative impact upon our wealth. To put it bluntly:
YOU are the biggest threat to your own wealth!
Anyone with even a basic grasp of maths will be able to tell you that paying interest on money is bad.. getting interest on money is good. However time and time again I see those around me rushing off to buy things on overdrafts.. credit cards.. even payday loans! These aren’t household essentials to feed their starving families through the last week of the month before payday, or to complete an emergency repair on the family car. These friends, family and colleagues of mine are out buying TVs, holidays, alcohol and many other completely unessential items. Why do they do it? These are clever people; university graduates and doctors, IT consultants and scientists… and yet they continue to make financially mad decisions.
The Entitlement Generation
I’ve seen this term mentioned a lot recently in all forms of media to describe anyone from 5yr olds up to early 40s. Perhaps not limited to a single generation but still focusing on potentially the core problem with attitude of the financial self-harming:‘I want it, I deserve it, I need it’. They use the reason of entitlement in order to justify anything from a few beers after a hard days work to exotic all inclusive delux holidays abroad. And why not? They’ve worked hard.. everyone else around are rewarding themselves.. they deserve a reward! But instead of rewarding themselves in a compounding way which will continue to reward for the rest of their lives.. they spend it on tiny moments of happiness which are all too often forgotten by Monday as they endure the rush hour commute back to work again.
A friend of my partner has recently started looking into purchasing their first house. They’re a young couple, no kids and both with average mid-£20ks jobs. With a deposit saved already they’re far ahead of most people their age and should have no problem getting a mortgage to cover a 2-bed starter home. It’s perhaps not a forever home, and they might have to move should multiple children start arriving.. but its a foot onto the ladder and brings them out of rented housing. My partner had heard that they were struggling to find anywhere suitable and so linked over a couple of reasonably priced houses in nice areas around us. A week later she asked if they’d been to see any and was surprised to hear that of the 10 or so she linked.. none were suitable. The problem? In her own words:
“None of those places are the house I deserve”
It turns out my partner’s friend doesn’t deserve a decent starter house for their.. starter home. They deserve a 4 bedroomed detached house out in the suburbs but with a quick route to the motorway for their weekend shopping trips and local pub for the after-work pints. And if they could get that for within their budget that would be perfect thanks. Unfortunately for them this is the South East, 30 minutes by train to London. Houses of that sort go for at least triple the budget around here.
So instead of making the horrible sacrifices required to purchase a perfectly reasonable started home.. they’re going to continue renting in the expensive town centre while searching for the 4 bed detached house they deserve. All the while continuing on their expensive weekly shopping indulgence and pints after work. Great plan.
Why do people continue to do this to themselves? Is that flat screen TV worth the 1999% APR pay-day loan and enduring the extra 6 months of rush hour commuting to pay it off? And is it worth renting for decades and throwing money away on consumer tat whilst you search for a house way out of your price range because you think you deserve it?
17 thoughts on “What is the biggest threat to your wealth? You!”
Great post Guy. Some people’s expectations are just unrealistic – you can’t expect to own a dream home as your first home. If so, then you deserve to struggle with debt!
I recall when the first of my friends from uni got on the housing ladder after we graduated, the first of us to get a mortgage, so finally in the grown up world! Their house was barely a step up from the basic small old student houses we lived it but it was their starter home.
When I was on the hunt to buy my buy-to-let, I was looking at one bedroom apartments, which I thought would be ideal for a young person or young couple to start off with. What surprised me was how many there were available on the market for sale yet nobody was interested in buying them except BTL landlords. You might think it’s because of the price range but no, I was looking at apartments in the cheap/affordable £55k-£60k range! Seems that such properties are beneath some people to buy as their first property as they want to walk into a perfect 4 bed detached, yet they will moan that they can’t get on the housing ladder!
I know exactly what you mean Weenie. Some of my friends purchased small starter homes or ones needing a lot of work.. have paid off chunks of the mortgage or increased it’s value through renovation and are now starting to look into selling to move into something bigger. Compare this to some of my other friends who refused to move into a smaller or not as nicely finished house and they are still renting 5 years longer.
I think a lot of the issue is that as children we tend to grow up in our parent’s house which may well be their 2nd or 3rd houses up the ladder. Because of this we only ever grow up seeing the nice 3-bedroom semi detached and so expect that to be our first home too. We don’t see the decade of living in a tiny 1-bedroom flat that they had to endure before moving up to the nicer houses we grew up in.
Everything has a price, the chances are that most people reading this or other similar blogs understand that. Having the ‘house she deserves’ comes with a price – years of mortgage payments stress of raised interest rates and or redundancy. Having a house you need and living a general ‘low cost’ lifestyle comes with the price of you not being able to buy flash items, but then I don’t view that as a price.
Me, I love the independence and freedom that making low cost choices for 30 years has given me.
Hi Ken,
Everything has a cost but for some reason people can’t seem to properly judge deferred costs. I’m the same as you; I don’t really see it as a sacrifice to not be buying flashy items. Really glad to hear that the low cost lifestyle worked out for you and that you’re now reaping the rewards.
Nice article. Weirdly, I was working on one very similar myself. May have to shelve that for now!
I agree with you. There seems to be a generation of what I call “rich paupers”. People who are actually comparatively rich but consider or even make themselves poor, financially threatened or hard done by.
There are many ways to be such. To earn well but somehow still be hugely in debt. To be well-off or comfortable but consider yourself hard done by unless you live in luxury (rather like your example above). And, many many other colours in addition to these.
It is a great shame. However, hopefully in time this mentality will slowly be overturned. But I won’t hold my breath in the meantime. All you can control is your own actions, I suppose! It is a start at least!
Hello Dividend Drive,
Perhaps it’s just the time of year after the give give give of Christmas that people turn their focus to themselves and what they want?
I love the ‘Rich Pauper’ term! It seems the main stream media also loves them as almost every day there is a new article on how hard done by a couple are when they earn £100k+ and yet cant afford to take a 5th holiday that year because their 6 kids need to go to private boarding school. It’s like trying to keep up with the Jones’ except now they’re trying to keep up with a perceived image of themselves.
Interesting thought! I wonder whether anyone has researched into whether that is the case. It is possible that after the supposed season of “giving” there is a hefty swing towards “taking” in people.
I know. I can’t work out why. Of course, it could be that they are trying to get the attention of those people for advertising purposes (they must be a very attractive demographic from advertisers point of view).
I spent my entire childhood closer to the real “pauper” end of the scale. So I don’t have a great deal of sympathy for them, sadly. Weirdly, I was actually better off whilst at university than at any other time in my life. I did well and got quite a few scholarships meaning for once in my life I actually had something: education and some financial security! Odd reversal of what most people think!
I think a lot of people have mixed up want with security. If they get what they want they consider themselves financially secure. If they don’t get it, they don’t feel secure. All it needs is a little mental rebalancing and that can be put right! Maybe if we were able to reveal such thinking as an example of mental self-abuse (which in essence it is) it would soon start to change…
Nail, head and all that :) I heard colleagues’ kids moaning that they couldn’t buy a house when their parents were in a half-mil house with a significant mortgage at the peak of their earning capacity. The only stuff they could afford was junk. Just like when I started in a two-up-two-down.
Having said that, it is a bit harder than it used to be, although I (stupidly) bought at a 5x income multiple. It is terribly hard to zoom out to the big picture when you have no frame of reference. I am most impressed by many of the PF bloggers out there in the first part of their careers who have far greater wisdom that I had in my first real job, because they seem to have learned the principles rather than taking down all the mistakes one by one.
Morning Ermine,
Good point about the significant mortgage as well. I doubt many parents will discuss or even mention a mortgage to their children and so they grow up thinking that 500k house was easily bought and paid off. I also mentioned A similar problem in my We make your own luck post after a friend commented on how nice our house was and complained he couldn’t afford such a place. What he didn’t see was the years of renting a tiny flat, staying in on Friday evenings and lack of foreign holidays.
If people only see the end results of hard work without the effort required to achieve them; they can believe it was easy to achieve and that they should have done so also.
It’s the American Dream, though, innit? Extraordinary results usually need extraordinary effort, but it’s easier to say it’s your birthright – at any rate that sells better :)
Great article and excellent points. Lower your expectations and wants and you will be much happier in the long run. It’s simple. :)
I don’t think its a case of lowering your expectations.. but being realistic about what’s possible and realising that you CAN have that massive house if you really want however it might take you longer to achieve it and will be at the expense of other things (like an early retirement). I know which i’ll choose.
Maybe they should just leave the SE of England?
4 bed detached house is buy able is most parts of the UK on a £50k joint income
Perhaps, although it’s hard for some people to leave their family and friends in the home town. I expect when we come to retire we will end up moving to a cheaper area of the UK or abroad to get a nicer house for less and release some of the equity for investments.
Great post and so true of today’s society.
It just goes to show how consumerism has completely pushed these expectations of immediate gratification on the younger society. It is back to the age old problem of ‘keeping up with the Joneses’.
They see people around them with their dream house and they want it too. Funny thing is when they get it they will probably moan about everything and want to move again but can’t due to costs,etc…
This couple don’t seem to want to buy a small house and then move in a few years – although with the way house availability is going and costs, I can see why some people are going straight in to their dream house. They want to buy once and stay there for years as moving house isn’t so smooth as it once was.
My first starter house was a repossession with no boiler and most of the electrics stripped out. My boyfriend and I spent months working on the house getting fit to live in. That was after the last housing crash when people had negative equity and the previous owners had over committed couldn’t keep up with the payments and with a house worth less than the mortgage, they went under.
Having heard that, both my boyfriend and I wanted to stick to an affordable housing plan. We enjoyed the house even more because we had invested so much time in doing it up.
Young people don’t seem to want to do that, they want a house that is finished and ‘show home’ right from the start. Back to that immediate gratification syndrome.
Hello SparkleBee,
Completely agree about people wanting to move right into a perfectly finished home right away! When we first started looking; my girlfriend came out with the great line “I don’t want to live in a ‘used’ home”. I eventually convinced her, however she was very taken by the glossy finished show homes on the local estates. Yours for only 20% markup!