E92: Why Wealth is Elusive and How to Make a Breakthrough

Nate: In this episode, we will discuss the real reason it can be so difficult to build wealth in our culture and how you can overcome the headwinds that try to keep you broke. She’s Holly, and she helps people find financial freedom.

Holly: He’s Nate. He makes sense out of money. This is Dollars & Nonsense. If you follow the herd, you will be slaughtered.

Nate: It’s amazing to me in the society we live in how things have changed over the generations. Now, I’m not an old man. I’m a young buck, and so I’ve grown up in the modern movement. People try to do studies on the different generations, whether it’s gen X, baby boomers, gen Z, millennials, and all sorts of things of what are their spending patterns and how they’ve been affected by society and everythings like that. Well, it does seem to be true, and I think in this whole coronavirus thing, we’re starting to see it come out even bigger, why it is that the world wants us to be broke. I feel like the world wants us to be broke because they’re just trying to get us to spend all of our money.

Holly: I think, Nate, is not just spending all of our money, but we’ve been taught a belief or a concept that as we spend more money, it helps the economy; therefore, helps us.

Nate: I think that’s a good point because when the government goes out and they send stimulus checks to people, what do they hope we do with the money that we get?

Holly: Spend it.

Nate: They hope we spend it. That’s the whole reason they’re doing it. They’re stimulating the economy. They say, “If we can just spend more money, if we can convince people to spend more money, then our economy will be booming.” The same thing goes for when the Federal Reserve reduces interest rates. What are they hoping to do? People will borrow money. People have less to pay on their mortgages so that they can have more to spend. It’s a spending-based economy. That’s really what we live in. When people stop spending, everyone’s panicking, like, “Hey, wait, we’re all going to get tanked,” or something like that.

But what’s interesting is that whenever we look at a personally kind of… like your family, spending everything you make is not a wise decision. Having no money, having nothing to fall back on is not a wise decision, but the forces of society and culture are always vying for our dollars and really trying to encourage us to spend, whether we see it or not. Subconsciously, that’s what they’re hoping we’re going to do is spend.

You can’t really spend your way to wealth. Maybe that’s what they think when they’re trying to plan out the economy as a whole, but once again, don’t just be a piece in that. You need to figure out what’s good for you. Honestly, spending everything you make probably is going to cause disaster in your personal economy.

Holly: I think that even the point of the stimulus check is the number of people, and I don’t know about you, Nate, but that I’ve heard, “When is my stimulus check coming,” and, “How am I going to spend it?” That’s the first two things that that is, “Have you got your stimulus check in, and how are you going to spend it?” In my mind, I never even thought about… I haven’t even looked to see when I’m going to get my stimulus check. I haven’t gone online to register so it can be direct deposit because in my mind it wasn’t about how am I going to spend it. It was how is this going to be used to benefit my family? I think it’s changing that mindset of not just on a national economy level of we’ve got to help the economy, but what is best for your family’s economy.

Nate: It can be difficult, I mean, when you look around and you see the savings rate in America so low and you see people struggling financially so consistently. It doesn’t have to be that way. It doesn’t have to be that way for you, but it is true. You’re going to have to fight against the mold. Maybe we’re not as bad as it was back in the ’80s, but right now with this past bull economy, people have really… you see the savings rate drop. People stop saving money, whatever, people are just thinking, “Man, this thing’s never going to stop. We’re going to keep going up and up and up,” and then it crashes down, and now everyone starts to hoard their money.

But either way, the truth of the matter is if we can’t learn to live on less than we make and we can’t learn to get to the point where we can save money, it will be very difficult to achieve any level of financial success in this life. I really do think. That kind of brings us to what we wanted to talk about today, which is something known as Parkinson’s law. Parkinson’s law, you can actually find it. For those of you who have read Nelson Nash’s book Becoming Your Own Banker, you may recognize this. For others, you may not. But what is Parkinson’s law, Holly?

Holly: Parkinson’s law is simply as income rises, so do our expenses. As we grow and create more and more wealth maybe or we earn more and more money, what happens is we don’t end up saving more money, we end up spending more money, so our expenses continue to increase. I know that Nate and I have said this before, but it comes down to really asking if you need something or you want something, before COVID-19, we were paying, and I’ll be honest, to me, a stupid amount of money for cable TV, not because we couldn’t afford it, but I was like, “We don’t need this anymore,” so we canceled it with no plan to ever put it back in to have it. We actually found we had more freedom by canceling it than we would have if we’d kept it. I think it changed our mentality, and yes, we’re saving a little bit of money, but the reality is it was an expense that because we could afford it, we just paid for it.

Nate: I think that’s a good point. I’ve heard someone say that it’s more difficult to budget the more money you make. I know that’s definitely true for me. When I wasn’t making anything, when you go back to college or something like that, every dollar is important, and so you really have to be mindful of where the money’s going, but once you start getting more affluent, when you start making more money, you’re growing in your career, whatever it is, the little things that we don’t even think about because we have the money we just spend on it. I think that’s a good point is being conscious of it.

I used to be better at being conscious of it than I am today. I mean, how much money I’ll spend going out to eat these days 10-years-ago Nate would have been shocked, but it’s one of those things that just starts to creep up because Parkinson’s law is true. Expenses rise to match income, and once a luxury is enjoyed, it soon becomes a necessity. That’s what Parkinson’s law states.

There are so many things today that I don’t think I could live without that 10 years ago I was perfectly fine living life with that, and because this is a law of mankind, because this is just a natural progression, we do have to consciously fight against the desire to, as our income goes up, to constantly finding new things to spend money on.

We’re in this environment where it’s like they’re trying to breed this contentment. For those of you who have taken any sales courses or anything like that, what everyone’s trying to do is just convince you that you have a problem, and then if you give them the money to buy whatever it is, that they’re the ones that can solve it for you. We’re constantly getting bombarded with problems that we didn’t even know we had, and then we’re solving them. It is amazing to me that at some point we have to be conscious enough to say, “The value I’m going to get and the freedom I can get from paying myself first before I go out and do all these other things is really more valuable than actually having the stuff.”

Holly: Yeah. I think when we think about the stuff, if you or I, and I’m going to transition a little bit, but if Nate or myself asked you to sign a piece of paper and say that anything you make from here on out would be belonged to Nate or myself, let’s say, so you’re going to be Nate’s slave, none of us would ever sign that becoming a slave to someone else. We would never do that.

However, if we actually changed that to becoming a slave and looked at it, right now, you guys are… each one of you, you’re going, you’re doing your work, and you’re doing all the work, and the clothes people are getting the money, the food people are getting the money, our taxes, gasoline, utilities, all that is getting all the money, and yet we are not actually making any money, so you’re a slave to many masters versus one master. There’s no difference. If you’re doing all the work and everybody else is getting all the money, there’s no difference between being a slave to one master or many masters, and unless you change and conquer Parkinson’s law, you’re constantly going to be that slave to the many masters.

I shared last week with a live webinar, but I’ve been working a lot, and it gets really, really easy just to stop and be like, “Instead of making dinner, let’s go out and get something to eat or pick something up,” and just changing that mentality, we actually didn’t go out to eat. We actually made dinner together. When we actually stayed home and made it together as a family, we were like, “Man, these were really good meals. We could afford to go out and get the food, but the reality is we didn’t have to and we didn’t need to, and instead, we created a memory. It’s conquering that. Just because I can afford it doesn’t mean we always should do it.

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Nate: We just needed a shot in the arm of an injection of contentment back into the society. Going back to being contented with things that for generations we as people have done and that they there can be community building. I remember my own thoughts as I’m trying to kick back in Parkinson’s law, which is not going that well because as my income has gone up. It’s so obvious, my expenses have gone up with it too. It is funny how you think… I remember when I first got started and I was trying to figure out how much could I live on and how much do I need to make in my business and things like that. There was a certain figure, and I would laugh at that figure today. It’d be like a joke. I couldn’t live off that. But it’s amazing how that’s happened.

We recently did move into a new home, but we’d been living below our means. We were both fairly frugal. We were raised fairly frugal, and so it hasn’t been extremely difficult for us, but I remember when we were thinking about buying a new home, we had the honest conversation of, “If we were to buy this new home,” and the price range we were looking at was probably about a thousand dollars more per month than what we were currently living in, and I was thinking, “What if we were to, instead of buying this new home, what if we were to do something else with the thousand dollars a month that we would now have to contribute to the home? Would we actually like our life better if we built it around that?”

Honestly, we ended up buying the home, so I don’t know [inaudible 00:12:38], but it was just us trying to be conscious of saying, “We’re not just going to do things just because we want to. We want to be conscious, make… all the money that comes in, we want to be consciously deciding what to do with it.” Kicking Parkinson’s law to the curb, if you are struggling to gain steam and if you’re just living paycheck to paycheck, or even if you’re not and you’re saving some money but you just feel like you’re earning way too much, like where’s the money going, I’ve had that thought many times, like how did I earn that much money?

Well, I mean I save a lot, but man, I thought that I would have even more based on what I heard and so forth. It really might be time to take a closer look and say to yourself, “Am I just saving whatever’s left over,” and to switch it and to pay to make a bill for you, we like to call it, that just you pay your bills and you get everything done, make a bill for you. To me, that’s my infinite making policies, like a bill for me, that I’m setting money aside, it’s always in front of me, and I know exactly what I need to do to be successful because I’ve built my life around that. I know if I paid these premiums, this is what it’s going to occur for me, and I want what that brings.

Holly: I think, Nate, that’s the key there. We say, “Pay yourself first,” but you have to make a conscious decision to create a bill to yourself. This is a bill owed-

Nate: Yeah, you do all the work. You’re exactly right. You owe yourself that money. Exactly. I love that.

Holly: As much as is we say, “Hey, pay yourself first,” if you don’t, most of the time, if you don’t think outside the box and create a bill for yourself and actually sit down and have the discussion, what should that bill be?” it shouldn’t just be the leftovers like Nate said.

Nate: Like how much are you worth. Exactly. Right.

Holly: What is that worth? Only you can answer that, but you’ve got to get to a point where you say, “This is my worth and this is what I’m paying myself.” I think once you do that and you create that bill, even as your income might rise, the bill sometimes rises, but it doesn’t necessarily mean the expenses rise. You can be able to keep paying that bill to yourself and keep your expenses where they were at because you’ve learned the value of you as the worker. You’re doing the work, and you’re actually paying yourself for that work so that there is some worth instead of feeling, like Nate said… I’ve done this, Nate, a lot in the past and really trying to conquer that Parkinson’s law of “what is my worth and am I just spending everything and it is the leftovers” because if you are asking yourself, “I did all the work and where did all the money go?” something has to change. It starts by, hey, make a bill to yourself and pay yourself that bill.

Nate: Yeah, I think that’s true. Nelson Nash, for those of you who don’t know who are new to the podcast, he’s the one who wrote the book Becoming Your Own Banker. In that book, he describes the process of using life insurance to become your own bank. It’s a really interesting concept for those of you who haven’t heard from it, but all that to say he wanted to make sure, and I loved… He’s like that sage-old wise mentor through his book. He writes that way. But he wanted to make sure that it wasn’t just analytics and details about the structure of the policy and how to use it, but he made a big point to say that there’s human problems to building wealth. It doesn’t matter what avenue you choose to build wealth with, whether it’s infinite banking concept or something else. If you can’t overcome some of these human elements, these human problems, then you’re not going to be able to be successful.

The number one is being able to kick Parkinson’s law to the curb. If you can’t, it’s going to be tough. Doesn’t matter if you’re doing infinite banking or not. If you can’t learn to live on less than you make, you will just be a slave to the world. You’ll work, but you’ll have nothing to show for it. That’s what we’re trying to avoid for sure in that. But Holly, it also matters where you-

Holly: Put the money.

Nate: Where you put the money I think really does matter because you and I both, we meet with a lot of people, and they may think they’re paying themselves first because are they’re putting money into a 401(k) or to an IRA… which is similar. I think that’s great. Please do in some degree. But what ends up happening, and I’ve said it many times before on this podcast, is that you end up living paycheck to paycheck with a retirement program where you’ll work from age 25 to 65 and just be broke practically the whole time with nothing really to show for it.

At the end of the time, there’s this 401(k) balance, and you’ve just scrimped and scraped through, and there was not a lot of freedom emotionally and spiritually during that timeframe because the money was locked up and you were still having to go into credit card debt, still having to go borrow from banks to buy the car and never being able to pay off the mortgage, and all of these issues that we deal with, do I have enough money to go on vacation and so forth. You may have the money, it’s just locked up.

There’s a freedom that comes when you have money that you’ve been paying yourself for because you’ve been living on less than you make. You’ve built it up, and it’s in a place where you can actually access it. There’s a freedom once you get… I would say I’m pretty much there myself, Holly, and I know you would be too, where there’s just nothing that’s going to come your way that you can’t take care of and that you can’t handle with what you’ve done. There’s a freedom to be experienced today as well as in the future financially when the money is producing your income for you so you don’t have to work, but there is a freedom that you can experience today whenever it’s done correctly and you know how to use it.

Holly: When you talk about the money’s locked up, you’re doing a good job by putting in a way is what Nate’s saying, but you don’t have access to use it, and instead, being able to access that money, it actually gives you control of the money today to be able to use it. I feel like there really is a different freedom, or I even say peace in knowing that, hey, I’ve put that money into life insurance policy that is growing for me, but I also can use it. I saved it away, and I also have death benefit, but I get to use it. I get to use that money.

The problem with the retirement programs and the 401(k)s is you don’t get to access the money you’ve saved, and so you do go through that life feeling like you don’t have much, partly because you never see the money. Then money never goes into your bank account or your paycheck. You never see it. It’s going into that 401(k), and you can’t use it. At the end, you end up… you save, but at what cost to you? You didn’t really live life.

Nate: One of the things that it kind of struck me just like a quick little hint or tip that I’ve noticed as well is that when you get used to living on less than you make, paying yourself for saving money is it does a couple of things as compared to if you don’t. Some of them are obvious, but some of them we just don’t think along these lines. If we start to save money and live on less than we make, it’s pretty obvious that you are going to start building up capital and building up wealth faster than if you didn’t. I think that’s pretty obvious. If you haven’t been doing a very good job and you start making it a priority to do that, well, yeah, you’re going to start seeing larger and larger amounts of money under your control.

But on the flip side, when we pass 20 years down the road and we want our money to work for us as opposed to us working for money, then that pool of money would be larger because you proactively fought against Parkinson’s law. You have more money there. But on the flip side, you’ve gotten used to living and being content with a lower lifestyle, we would say. We didn’t end up spending almost all of our income, so we’re used to living on lesser amounts. Not only did we have more money, but we also don’t need to replace as much lifestyle expenses necessarily when we get there.

It does one of two things. Either that law allows us to leave a larger legacy because we have this big pile of money, we just don’t need very much of it to live in relative terms, or that means that we’re going to get to retirement sooner, or I don’t even like the word retirement, but we’re going to get to the point where work is optional. We’re going to get to that point even sooner if you really learn to kick it to the curb because you’ll have more money, less to…. fund just to pay the bills so you can hit that financial freedom goal even sooner, or you can keep pushing it back and then just leave more as a legacy. Both are great options. But we don’t think on those lines the value that we’re bringing by making this a priority.

Holly: I just feel like that’s such the key. The value you get that the wealth does increase way more quickly, but even when you come to whether you choose to retire later on in life where you don’t have to work if you don’t want to, because you’ve established that lifestyle, there’s even so much more joy because there’s more money to even do things with and-

Nate: They can increase your lifestyle if you want in return.

Holly: You could, but you also need to… I feel like you get to bless others more. I say even later on in life, your giving doesn’t decrease to charities and things you want to give to. The joy you have from all the work that you accomplished or did, you still have that joy because you’re still a value to society because there’s something you’ve created, not just for yourself but your family.

Nate: The focus of building up capital and paying yourself first, there’s almost a lie out there that says it’s going to be like restrictive if we started doing that or it’s going to suck life out of our financial situation, whatever it is, if we’re carving out stuff to save money. I think that’s just a wrong mentality because the truth is there’s actually bondage if you don’t learn to live on less than you make. You never are free. There’s always fear. There’s always anxiety. There’s always stress, and you’re always broke. There’s actual freedom when you learn to, and control, this feeling of being in control, when you do start down that journey.

Holly and I, we both strongly encourage you if you are not one who is prone to paying you first, and instead, everyone else gets the money, switch it up. If you are good at it, let’s do more. Let’s always grow. Let’s always do better. Let’s make… How can we build more wealth with the income that we have without having to unnecessarily hurt our lifestyle or change what we’re doing, but how can we just be creative with it. It can be fun once you get into it, to be honest.

Holly: There is a joy and a freedom and just the opportunity to know you’ve created something and been able to do something. I know Nate and I’s hope is that you really heard us in learning to live on less than what you meant make, defeating Parkinson’s law, and really creating that bill to yourself. If you don’t know how to do it, please reach out to Nate and I. It’s not so hard a concept to create, but even you just don’t know, it’s just the ability to not just say, “Pay myself,” but create a bill to yourself and what does that bill look like and what’s that amount. Only you answer that, but until you do that, it’s going to be really, really hard to create wealth in general.

Nate: It really is. Always remember, if you follow the herd, you will get slaughtered.

Holly: For free transcripts and resources, please visit livingwealth.com/e92.