To abstain from the enjoyment which is in our power, or to seek distant rather than immediate results, are among the most powerful exertions of the human will. N. W. Senior 1836
Nassau William Senior, was an English lawyer who also became well known as an economist. His area of legal practice was in what, at the time was known as conveyance. That is the legal transfer of title and property between parties through the granting of an encumbrance such as a mortgage or a lien. In other words Senior was a real-estate lawyer who worked mostly on behalf of banks and other wealthy individuals. It was his job to help those wealthy folks, and their representatives control the flow of property, protect their assets and build wealth by collateralizing physical property and loaning money to others. It was through this work that Senior saw firsthand how difficult it is for some people to control their desires, and delay gratification in order to build wealth and how easy it is for others to exploit those same desires to their own ends.
Senior would have had an intimate understanding of what the writer of Proverbs meant when he wrote;
The rich rule over the poor,
and the borrower is slave to the lender. [Proverbs 22:7]
What Nassau Senior knew to be true in the 19th century was true thousands of years before him and is still true today. What we are talking about here is the ability to display self-discipline.
But it’s more than that.
It’s the inability of some people to put the needs of their future self ahead of their present self. When our present desires trump our future needs we are essentially dealing with a failure of belief in the future and imagination for what that future may hold. When we put our faith in immediate desires we allow others to control our destiny. We borrow money to finance our present and enslave our future selves.
As a financial advisor I see the results of this failure in belief and imagination play out every day. It is my job to help you envision the future.
Consider this – In 2012 the average household income in Ontario was $75,000 per year. After taxes that translates into a take home pay of about $48,000, give or take. In addition the average Canadian carries $27,000 in consumer debt and about $100,000 in mortgage debt. Put in terms of monthly cash-flow that translates to about $4000 a month, $1000 goes to mortgage payments and $650 a month to consumer debt servicing, leaving just $2500 per month for things like, food, household supplies, utilities, insurance and any number of things you can think of.
Savings get pushed way down the list.
In other words the average Canadian has mortgaged their future to pay for the present. Now what if we didn’t have that consumer in debt? $650 a month invested at 8% for 35 years turns into $1.4 million! But since most of us have debt let’s look at it another way: What if we lowered our standard of living by just 10% and invested that? What would $400 per month turn into? Answer: $860,000. Under current legislation that gives our future self an income of $54,000 per year from all sources (Canada Pension Plan, provincial plans and investment income). Can our present self do without 10% to ensure that our future self has enough to live on? I sure hope so.
All this was inspired by my recent viewing of a TED Talk on the relationship between our present and future self by cognitive psychologist, Daniel Goldstein. Check it out here:
And remember –
The best time to plant a tree is twenty years ago, the second best time is now. [African Proverb]