There’s more money in the world than ever before. Global wealth has been expanding rapidly for decades, despite several financial crises. So why aren’t we all getting richer?
New money flows disproportionately to the top. It’s an unfair game and the odds are stacked against us. So we have to be smart with money. And smart about living.
Through no fault of our own, we’ve been getting progressively worse with money through each passing generation. It’s time for change. It’s time for a new set of rules. It’s time to rediscover our true self - and earn, spend and invest in the right way, to achieve our life ambitions.
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This book was written in Spring 2020. The chapters form a money journey and each chapter has two aspects - a global view and a personal view.
All rights reserved © 2020 The Money Giraffe. No portion of this book to be reproduced in any form without permission. For permissions contact FreedomWriterUK@gmail.com.
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Money provides the food we eat, the clothes we wear and the roof we sleep under. It pays the bills. It pays for our everyday life choices - a Netflix subscription, a book, a beer, a latte, or a gym pass. It’s paid for our past and it’ll pay for our future. It’s paying for the present you’re living in right now, wherever you may be and whatever you’re doing. Take a look around.
Money is the main reason many of us get up in the morning and go to work. It is also, therefore, our time. Money has the power to ignite many of our emotions, from happiness to anger, ecstasy to despair, relief to greed. Money is intrinsically woven into the fabric of our being. We earn it, save it, spend it, invest it, donate it, borrow it, lend it and at times waste it or even lose it.
Money can help us do all manner of wonderful things. With money we can travel, revel in exhilarating experiences, add adventure to our lives, go to restaurants, drive a car, live in a lovely home and dress in nice clothes. It allows us to spend time with friends and lavish our loved ones with gifts. We can support charitable and community causes. With money, we can give our families the good things in life. Money can give us access to the best schools and universities for our children. It can give us a pathway to premium healthcare and professional services. Money can enable us to do almost anything we want.
Money fuels innovation and enterprise. Money creates enormous opportunity. Money can literally change all our lives for the better.
Money is also extremely dangerous. Money funds wars, terrorist movements and criminal organisations. It can drive hatred, fear and resentment. When we don’t have enough money to live the life we want, or enough just to get by, it can make us depressed, anxious, angry and jealous. If we’re continuously spending more than we have coming in, it can put strains on our relationships, fracture families and cause illness. Money can consume us, just as much as we consume it.
The problems with money have nothing to do with a lack of it. In theory, there’s plenty of money, or wealth, on the planet to go round. Most of us in the western world will get our hands on enough of it in our lifetime to provide a reasonable existence. The trouble resides with human behaviour. Or rather, how us humans have been conditioned to think and act in the 21st century. We have, in modern times, developed a plethora of incredibly bad money habits.
While global wealth has increased, the mindless dogged pursuit of it has found new levels of intensity.
There’s around £30 trillion of physical money in circulation. Total global wealth, including things like property, is around ten times that amount, at £300 trillion. If that £300 trillion in global wealth were shared out among the 5.6 billion adults in the world, the total pot would be sufficient to help solve a lot of today’s health and welfare problems. But, of course, the distribution is not equal. Some people have much more than others. Some countries have much more than others. There are gaps of many kind - geographical, gender, generational.
As a nation raises its total wealth over time, we’d reasonably expect most people to benefit and feel an uplift in their own individual financial wellbeing. After all, the standard of living in the more developed places like the UK, the US and Europe, appears far superior to that in the developing countries of Africa. The majority of us are fortunate enough that we have some kind of a home and don’t rely on handouts, food banks and charity purely to survive. We are not plagued by many of the life-threatening conditions that persist in some parts of the world. But new money flowing in to a country floats disproportionately to the top. In China, while the economy as a whole has skyrocketed in modern times, the wealth inequality among its people has expanded.
The UK is actually slap-bang in the middle of a wealth boom, one that has been gathering pace since the early 1980s and that was not significantly derailed by the dot-com crash of 2001 or the financial crisis of 2008. Over the last four decades, the UK’s wealth - the value of all the country’s pensions, savings and property - has gone from three times the economy’s national output to seven times. However, the UK remains the fifth most unequal country in Europe. The income of the top 20% is more than six times that of the lowest 20%.
Wealth inequality is nothing new. Since the dawn of time, some people have had more stuff than others, whether it be oxen, coal, land, silver, potatoes or whatever. There have always been the rich and the poor, as well as class divides. But over the last 200 years we’ve seen such inequality become more complex in structure and generate a catalogue of modern problems. Not just for those who have the least, but for everyone. Research has demonstrated strong connections between wealth inequality and violence, drug abuse, obesity, teenage pregnancy, mental health and social issues.
‘World’s richest 1% own 82% of total wealth’
‘Richest 1% earn 26.3 times more than bottom 99%’
‘World’s 26 richest people own as much as poorest 50%’
‘Fat-cat bosses paid record £3.45m each per year’
Newspapers love these kind of headlines. Just as they love to slate ‘millionaire footballers’ for going to nightclubs and politicians who buy a second home. They get us all riled up about the injustices in the world. It’s us versus them. The 1%er articles tell a sorrowful tale: The world’s elite accumulating ever more wealth while the billions in the middle endure ever greater struggles. The billions in the middle. You and me. That’s where the real story lies.
We are all born with a financial profile. We adopt, by default, the income, expenditure, wealth and financial behaviour patterns of our parents or guardians. They have to make those decisions for us. And so money shapes our lives from day one.
Our adult financial behaviours are, in part at least, driven by genetics. Several studies have shown that the difference in one gene can determine whether we are likely to make good or bad financial decisions.
Nurture plays a big role too. Like every other facet of parenting, the behaviours we are exposed to during childhood can have a long-lasting effect. If our parents are terrible with money - spending recklessly, racking up loans, struggling to save for the future and shoving their financial worries under the carpet - we can take such behaviour for granted and be prone to copy it years later. If we are surrounded by prudent money decisions as a child, we can subliminally pick up on that too and store those good mannerisms in our memory bank for future use.
The cause and effect between parent and child can be complicated. It’s worth a few moments contemplation of your own financial upbringing. Look for connections between your parents’ money habits and your own. Did they introduce you to spending and budgeting as a child? Did you do chores for pocket-money from an early age? Did they adorn you with gifts and get you anything you asked for? Or were they thrifty with birthday and Christmas presents? All these behaviours displayed during your childhood can cast a template for money management.
Once we hit adolescence, we start to learn alternative ways of doing things; of doing everything. We may revolt against some of the ideologies we initially grew up with. We cultivate our own attitudes. But it’s harder with money to unpick the behaviours we learn as a child, simply because it’s too boring. In our late teens and early twenties, there’s a lot going on. We are hyper-aware of our emerging identity. We are challenging our environment, forging our own destiny. In that exciting, emotional state, ‘budgeting’ is unlikely to grab our attention.
The process of making money does grab our attention from an early age - but is perhaps not so tightly correlated to our parents’ upbringing. Among the research that went into The Millionaire Next Door, it emerged that 80-86% of Americans surveyed were self-made millionaires. They did not inherit their excessive wealth and were not fed into the established success of a family business. Instead, they started independently from scratch, worked hard and took responsibility for their long-term financial future at a very early age. Interestingly, when they had children, that second generation tended to be quite bad with money. And their children’s children were worse still. Did the cause-and-effect model break down here? Or is there another explanation?
While we undoubtedly have a mixture of nurture and nature chiselling our financial profile, there is another force at play. A generational one. Each era has its own unique set of societal and cultural forces. Things that are unacceptable to one generation may be accepted by the next. Since the turn of the century, there has been a modern-day acceptance of household debt. And this is where wealth inequality has burrowed into our lives and skewed our intentions.
It’s become a human trait that we spend what we have - and then some! The old saying ‘cut your cloth accordingly’ is exactly that - an old saying, made popular by a previous generation. These days, competition for the latest gadgetry fix and lifestyle phenomenon has sharpened. The new iPhone, a new fitness fad, the best bars to go to and holidays to go on. Our priorities are survival, short-term pleasures and parity with our peers. Life should be about more than that; more than just keeping our heads above water and paddling furiously, chasing our tail from one payday to the next.
The billions in the middle, you and me, live closer than ever to debt. Not necessarily in debt, but within a debt-driven environment. Bank overdrafts, credit cards, payday loans, student loans, car loans, hire-purchase, ‘buy now pay later’ financing, mortgages, remortgages. These things are everywhere around us; part of our common vocabulary.
Even if we don’t have a debt product as such, we may have a lean-looking pension plan (our future income), or be living precariously month to month. So if we were to lose our job, we’d quickly need to get credit of some description to keep our home and maintain our current lifestyle. Friends and colleagues within our network will at times have their own money troubles, which we may be privy to. Western governments are running the biggest countries in the world off a mountain of debt - a lot of which we’ll have to pay off in taxes.
We are surrounded by debt. We are now culturally au fait with, what I call, ‘the debt cave’. The deeper you go into the cave, the darker and scarier it gets, and the harder it is to find your way back out.
Some debt makes sense. Getting a mortgage to buy a house is almost inevitable. But much of it is dangerous. Car ownership is dying out; car financing is the new standard. In 2017, for the first time in 30 years, the average spent by each UK household was greater than the average income. In 2018, household debt (excluding mortgages) in the UK reached a new high at an average of £9,400. Personal debt has been growing at around 10% a year, while the UK banks collectively rake in more than £2 billion in revenue every year from the interest we pay on overdrafts.
The increasing normality of debt in our everyday environment has caused a major shift in the way we approach life. The world now revolves around ‘have it today’ - or even ‘have it today, pay for it tomorrow’. We have shortened our view of life. We exist almost exclusively in the near term. We have to-do lists that cover the next few days, or even the next few hours. We are stuck in a weekly loop of repetition. As a consequence, we are missing out on life’s big adventures. We’re not given the time and space to gaze to the horizon and dream. We don’t get chance to plot and build towards momentous life-changing events and experiences. There are so many wonderful, majestic things we could do with our lives that have become shielded from our vision.
We rarely discuss money outside our immediate circle. Talking about money is hard. We can spend a lot of time thinking about it, or worrying about it, but comparatively little time actively doing much to change the status quo.
A survey found that less than one in five people would turn to a professional service, like a bank or financial adviser, for guidance on investing. The respondents said they’d primarily look to friends and family for help or they wouldn’t talk to anyone. Now, in some ways, I don’t blame them. It’s a damning indictment of the banking industry and it shows an intense distrust of the system, which I share. But the figures are quite astonishing, given most people have limited knowledge of investing. We would put our faith in a surgeon if we needed an operation. We couldn’t possibly do that on our own. We go to a hairdresser when we want a haircut and we ring a plumber when the boiler’s on the blink. But when we need help with money, we feel we have very few trustworthy options.
Becoming great with money - and anyone can be great with money - can help set you free of this wheel and put you back in control. Through money, you can live more confidently and purposefully. Through money, you can have a richer and more elevated, experiential life.
As we’ve seen, the UK is enjoying a rapid boom in total wealth, and yet we’ve been getting progressively worse at handling our money with each passing generation. So how exactly did this happen?
The root cause lies in the modern ‘economic framework’ into which we are thrust from birth and that directs our behaviour thereafter. The economic framework is powered by three gargantuan machines:
Government
Business (particularly major global consumer retail)
Banks
Within this triangular framework we are raised and educated. We work within it, contribute towards it, consume it, live by it and die by it. We are integral to it. The systematic relationship of ‘government - business - banks’, which keeps the whole world moving, relies on us to work, work, work and buy, buy, buy. The framework needs us paying our taxes and spending feverishly, so the money we earn is reinvested back into the system, thus oiling the cogs, helping it grow and grow. Very simply put, that’s how the cycle works. The modern system. The economic framework.
Almost all of us live within this model. A few, you could argue, have escaped it - those who live off grid, for example - but by and large we live, work, breathe, eat and spend in line with this script. It’s too monstrously big a beast to circumvent. However, we can decide to what extent we play by its rules and to what extent we make up our own. We have the ability to use the system to our advantage and get the money within it working for our benefit.
The government
Whatever your political persuasion and whichever party happens to be in power, the tenants at No.10 want you to live to a clear, defined path. So long as we’re not a drain on public resources such as the benefits system, they actively want us to be pretty rubbish with money, spending hard and flirting with the debt cave. The income tax and national insurance we pay accounts for nearly half of the government’s total ‘money in’. The government doesn’t want you to be frugal, investing wisely and retiring early.
Governments often turn a blind eye to poverty-related problems, things like gambling addiction, out-of-control overdraft fees, loan sharks and pyramid schemes. Because they keep money moving. Margaret Thatcher once stated that “poverty is a personality defect”. Ben Carson, of the Trump administration, believes it’s “a state of mind”.
The regulatory bodies are notoriously lame, toothless and inept. It would be relatively easy to put limitations on sky-high payday loans, slam down harder on the lending ratios that persist in the banking arena and create positive new initiatives that help people plan their financial futures better. But they don’t.
We’ll look at how you can use the government rules to your own ends and how you can manage your money in a way that suits you, not them.
Business
The Advertising Association reports that well in excess of £20 billion is regularly spent on advertising in the UK every year. Marketing budgets account for 5-10% of a company’s total revenue, on average. There’s a reason these numbers are so big. Marketing works. It gets you parting with money (or more money) you didn’t necessarily want to part with.
Each individual advert, picture, logo, tweet and email that a brand pushes out into the world is intended to form part of a bigger emotive package, one that will psychologically draw you in and compel you to make a purchase - if not today then a year down the line. Ever-more cunning marketing mechanisms entice us. Ever-more sophisticated payment methods are wafted under our twitchy noses. When we submit to such charms and snap up credit, we’re fuelling the ecosystem, the economic framework.
We’ll look at the psychological tricks that you can deploy to help you spend positively and authentically.
The banks
The phrase ‘too big to fail’ found new prominence in the aftermath of the 2008 financial crisis. Governments (or rather us, the taxpayers) had to bail out the big banks to save them from going bust. The banks were so interconnected into the system - into people’s lives and homes, business accounts, investment funds and pensions - that allowing them to fall could have crippled the planet. Well, that was the reason put forward. But the phrase ‘too big to fail’ had been around for decades before that. And it still applies today. Nothing has been done to materially change the fact that the few big banks dictate everything, even the governments.
This book is about changing our relationship with money and the way we’ve been moulded by the economic framework, breaking that cycle and becoming independent and free again. This book is about making money work for us.
“The beautiful journey of today can only begin when we learn to let go of yesterday.” Steve Maraboli
“No man ever steps in the same river twice for it’s not the same river and he’s not the same man… The only thing that is constant is change.” Heraclitus
We don’t have a set amount of wealth that we are stuck with from cradle to grave. We all have income and outgoings. They are fluid. The total wealth we have is forever changing. We always have the capacity to increase the amount we have in the future.
When we contemplate money, it’s usually centred around our current predicament.
How can I earn more?
I need £200 this month for my car insurance.
I’d love to go on that weekend away with everyone, but I just don’t have the money right now.
I should be careful how much I spend tonight.
Oh no. It’s mum’s birthday this weekend.
The kids need new shoes.
We have been forced into thinking like this. Having a long-term vision, exerting control over our grand destiny, doesn’t come naturally.
We have a relationship with money. Just like we have a relationship with the people in our life. That means it will evolve, as all relationships do. We’ll have our ups and our downs. It needs a bit of work. But whatever point we’re at, we can always make things better.
Through this book we’ll look at how money can bring aspirations to fruition. We’ll look at your earning potential throughout the life stages. We’ll look at how you can spend the money you acquire to make the absolute most out of it. We’ll look at how you can invest it expertly and watch it grow. We’re going to examine what you want and figure out how money can help you get there.
Question the path you have chosen to this point and consider all possibilities for your future.
We are steered by the voices and jabbed by the opinions of others our whole lives - teachers, parents, friends, bosses, the government, the media, advertising agencies. We are told what we’re good at and what we’re not good at, what kind of job we should do and how much we can expect to get paid, where we can afford to live and what kind of lifestyle suits us, when to put the bins out, which new app to download, when to wake up and how much sleep we should get to be an optimally-successful, walking, talking, highly-functioning human being.
"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” Charles Mackay
As Mackay astutely concluded way back in 1841, human beings can be little better than sheep. We get swayed by majority opinions, we trust the easy option, we believe in authority and bow to those we perceive as more powerful, rich or knowledgable. We are instinctively wary of being isolated, standing alone, far away from the busy throng of popular verdict. It can be scary out there! So we huddle together for safety.
Mackay dissected a number of once-topical themes to explain the herd mentality. As well as money, specifically economic bubbles and investment herds, he tore down on the crowd-madness that has fuelled all manner of things: wars, alchemy, the tulip mania of the 17th century (when everyone basically decided tulips were amazing and they suddenly became the most expensive thing in the world - for a while), the witch trials of western Europe, and even the influence of politics and religion on the shape of beards.
We believe what we’re told. It was once widely held that the earth was flat and that electro-magnetic waves were proof of ghostly energies from beyond the grave.
Even within the overbearing structure of a conformist modern society - the economic framework - you can make a million individual tiny decisions that are not those of the masses, but that are unique to you. You can live intentionally, responsible for your own future, and do incredible things.
Wipe the slate clean, be true to yourself and live free of the herd.
Next: Chapter 2 - How Much Money You Need To Be Happy