To further the conversation from yesterday's video regarding the care and feeding of the goose that lays the golden eggs, I thought it might be helpful to summarize the main point. In essence, there are two uses for your money. One is productive and one is wasteful (and possibly even destructive).
Productive spending of money is actually not spending at all, but rather investing.
Non-productive spending of money is consumption.
The difference between the two lies in what is accomplished by the outgo of your (I'm assuming) hard-earned money. The key question is: does that outgo result in a return, or is it gone forever?
At all times, but especially when economic times are tough, spending should be done strategically to minimize the amount that goes to waste and maximize the amount that goes to something productive. Again, productive means it is building your wealth by being placed into something of value, something that "cash flows," something that brings back more dollars.
I belabor these seemingly simple points because I find that financial intelligence is an extreme rarity. It seems few people have ever been taught that money has a purpose beyond its use toward their immediate comfort and gratification. As a result, people making a six figure income have spent themselves into oblivion and have nothing to show for it. Incredible.
Difficult financial environments in which the economy slackens, the dollar declines in value, jobs become scarce, salaries go down, overtime is retracted, concessions are demanded, etc. only serve to emphasize the point and amplify poor habits. When these winds blow, the sloppy and financially ignorant (or consumptively addicted) are exposed. This is where panic sets in, and cutbacks in spending are made violently. The trouble is, most people cut back in the productive areas, too. They have wasted so much money and gotten themselves into so much trouble financially that they can no longer (or will no longer) put money into feeding the goose that lays the golden eggs. As millionaire financial advisor Todd Tresidder stated, "Those with credit card debt and too many bills are more committed to their lifestyle rather than to building wealth."
The financially mature understand that the golden goose must be fed no matter what. This means during the good times, when consumptive addiction and wasteful spending are at their most tempting. It also means during the tough times, when panic sets in and constrictive cutbacks are rushed to like rats fleeing a sinking ship. It is the discipline to use money productively and predominantly that separates the wealthy from the rest (with the exception of second-generation wealth-holders, whom we do not acknowledge as having any useful financial wisdom beyond the skill of good birth).