Tuesday, July 25, 2017

Hand to Mouth

If you spend what you earn, you need to earn what you spend. Living hand to mouth makes you completely dependent on the hand. It keeps the hand busy. In an agricultural world, this made sense because food couldn't be stored without going off. This made a 'work ethic' vital because you only got to eat if someone else was doing the work. You were a free loader. There was still some storage for the Winter. Ant Stark may have kept telling Grasshopper that Winter was coming, and Winter would have come like clock work to reinforce the need for a work ethic.

Winter keeps coming

As the world has broken its chains from an agricultural life style, this has changed. Much of our capital continues doing its thing without our efforts. If you have any wealth, are you a free loader? Wealth comes in different forms. Social Capital means that your labour has a bigger impact. It's easier to get a job, and if you get a job, it is likely to pay more. Laws, business practices and the country you live in give an opportunity to work not available to others. An opportunity to plan. An opportunity to own stuff. If you have financial wealth, it also carries on making money, even if you don't.

The idea of being 'self made' only made sense in an untouched, agricultural world. No one starts from scratch once roads have been built, languages have been formed, money has been minted, and laws have been fought over.

If you invested the same amount as what you spent every year, and that investment earned 5% real return (i.e. 5% more than inflation), then after 15 years your capital would be making as much as you. 50% at 5% for 15 years = Freedom.

If you were then a good custodian of that wealth, and spent less than it made, it would survive. An engine can be passed on to the next generation. 

Beyond the hand to mouth phase, is the growth and reinvestment phase. We are entering the custodial phase. Our contribution will gradually be a smaller and smaller component of the what we receive. Where we are all 'freeloaders' on the wealth created by those who came before, with a shared responsibility to those who will come next.

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