Tuesday, March 29, 2016

Time Goes Marching On

“Time goes marching on,
Pretty soon I’ll be gone,
To work again.”
Dr. John the Night Tripper

At least I think that’s what Dr. John is telling me, his Louisiana Voodoo funk delivery can be a little difficult to understand. Your relationship to money and time will largely determine the outcome of your life in this material world. It will also contribute a legacy, for better or for worse, to your children and their relationship with money.

If you misuse debt, if you don’t plan and prepare for a career with a future, if you never learn how to defer gratification, your fiscal time frame is too short. You are setting yourself up for poverty. The most extreme example of this kind of behavior that can be found in our culture is exhibited by drug addicts. Their relationship with money and time is, how long will it take to get enough money for the next fix? A more common illustration can be found in families that live pay check to pay check. Whether they are a two income family living in a McMansion and driving leased BMWs or a single mom trying to make ends meet with two part time jobs, they are not making decisions that will lead to the creation of wealth over time. When I worked in factories, many of my coworkers would spend extravagantly in the first few days after they received their weekly paycheck, then try to live on just about nothing for the rest of the week. Some of the younger, single men would only work enough to cover their car payment and bar tabs, then if they were on piecework they would slack off or in some cases disappear completely for a few days.

The middle class, as defined by net worth, does a little better. Instead of just looking for work, they had a plan. Perhaps they learned a trade. Perhaps they earned a degree with a realistic career track without taking on too much student debt. They are accumulating a few assets. Unfortunately, most of these assets, such as a house and cars consume rather than create a stream of income. Their time frame is month to month. Their measure of success is keeping ahead of the monthly payments. They have some money in the bank. Perhaps they are even putting something into a 401(k). If the economy is booming, they feel good enough to take out a second mortgage to buy a new SUV or take the family on a luxury vacation. After all, they work hard. They deserve it. If they are lucky they will work to age 65 (or later), pay off most of their debts, sell the big house, and live on Social Security, their 401(k), and the proceeds from the sale of their house in an area with a low cost of living.

The rich are different. Even if they are broke, they are focused on accumulating wealth. As they watch their net worth grow, they are planning on where they want to be next year and how they intend to get there. When young, they understand that a college education is a financial investment in the future, not just an opportunity to enjoy maximum freedom with minimum responsibility. Not only do they understand those are four irreplaceable years of their life, but in additional they understand the concept of opportunity cost. Not only are they paying for tuition, room and board, student fees, and books, but they are not earning money that could be coming from their job or starting a company. These are the people who understand that compound interest can work for you—or against you. They avoid debt like the plague. These are the people who are turning run down houses into rental properties or are studying the stock market, looking for opportunities. They understand that their decisions in the present moment will become their future.

Finally, consider the very rich. Steve Wynn dropped out of law school to take over the family bingo parlor in Maryland when his father died. The old man left him with $350,000 in gambling debts. Not an auspicious beginning for the King of Las Vegas. Even as a young, broke, businessman Wynn was on the lookout for investment opportunities. He was also trying to meet bankers who could help him reach his dreams. One of these men turned down the opportunity to become a part of Wynn’s first discovery. However, he was impressed enough with the young man to sell him a 3% or 4% stake in a bankrupt rundown gambling hall in Las Vegas at bargain price. The banker wanted Wynn watching over his property in that far away city. The rest, as they say, is history. Wynn proved a consistent winner who blessed his partners with unheard of returns on their investments in his properties. Today, with a net worth of $2.7 billion, Steve Wynn is still looking into the future. His latest project is a hotel casino in the Commonwealth of Massachusetts. His goals are to help make Boston a world class destination city and, through tourism, create jobs and build up tax revenue for his host state and local governments as he has done in Las Vegas and Macau. His mind is constantly looking into a future that will not take shape in the material world for years, perhaps decades, but when you hear Wynn describe the lobby of a hotel that isn’t even yet in the design phase, it is as real to him as if he was giving a guided tour to a celebrity customer.

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