Finance Matters! The Floccinaucinihilipilification Syndrome
From the second in the Finance Matters! books series:
“I do not want to hit heads over these issues, but I feel the need to point out our little inconsistencies. It is a dangerous situation. Floccinaucinihilipilification is rampant in all areas of personal finance. I’ll do my best to point them out and then Noel will give us encouragement and we will all go home.
“The basis of wealth building, i.e., building net worth, comes from refraining from spending, called savings, and investments. I realize most of us have already signed contracts for housing, cars and other goods and services. We must honor our word and pay them off. However, just as important as paying off the credit card loan is the shift in attitude about spending.
“The only way to build net worth is to save and invest money. Personal wages are our cash flow. Even if you have contractual obligations, pay yourself first by writing a check into a savings account. Remember, though, savings accounts are not emergency funds. That is a myth. Saved money is not spent. Emergency funds are amounts set aside to spend in the event of an emergency. Savings are real amounts paid into an account that is not to be touched. It is put into certificates of deposits. It is not spent. Net worth is not built by spending; it is built by saving money and, very specifically, saving money to spend for investments.
“So, next, invest. Fund your 401(k)s, IRA and Roth accounts. Talk to your accountant. Visit with your financial representative. If you do not have one, talk to one. Businesses need professionals to help guide them, and this is your personal business.
“Now, pay living expenses like housing, transportation, insurance, all the things that are vital. No one else knows what your personal business is-it is, after all, private. Pay those expenses.
“Next, budget what you will spend for emergencies, groceries, clothing and fuel. Understand that this area is where it can get tricky. If you do not know difference between what is takes to make sure the household runs and what is personal fluff, learn it.
“Notice I said budget for emergencies. This is another tricky area. How many of you know for sure you will have a flat tire this month? No one? How many of you feel you will have a flat tire sometime on a vehicle you own? Then you should have at least the cost of a replacement tire in your emergency account. How about a dryer? Your deductible amounts for insurance? Okay, you know where I am going with this, don’t you?
“The point I am trying to make is, unless you save money and buy investments, you will always have little or no net worth. It is the underlying principle of floccinaucinihilipilification. The transactions prove the principle. At the time of the sale, the buyer believes the good or service bought is more valuable than keeping the money. In the buyer’s mind, the money doesn’t have the same, or equal, value as the good being purchased. And, if a buyer continually spends all his cash, whether for goods, loans or amusements, it becomes apparent that cash has little or no value to that consumer.
“And that, my friends, is The Floccinaucinihilipilification Syndrome explained.”
from Finance Matters! The Floccinaucinihilipication Syndrome copyright 2011 by Leann Voss, IYR, LLC
“I do not want to hit heads over these issues, but I feel the need to point out our little inconsistencies. It is a dangerous situation. Floccinaucinihilipilification is rampant in all areas of personal finance. I’ll do my best to point them out and then Noel will give us encouragement and we will all go home.
“The basis of wealth building, i.e., building net worth, comes from refraining from spending, called savings, and investments. I realize most of us have already signed contracts for housing, cars and other goods and services. We must honor our word and pay them off. However, just as important as paying off the credit card loan is the shift in attitude about spending.
“The only way to build net worth is to save and invest money. Personal wages are our cash flow. Even if you have contractual obligations, pay yourself first by writing a check into a savings account. Remember, though, savings accounts are not emergency funds. That is a myth. Saved money is not spent. Emergency funds are amounts set aside to spend in the event of an emergency. Savings are real amounts paid into an account that is not to be touched. It is put into certificates of deposits. It is not spent. Net worth is not built by spending; it is built by saving money and, very specifically, saving money to spend for investments.
“So, next, invest. Fund your 401(k)s, IRA and Roth accounts. Talk to your accountant. Visit with your financial representative. If you do not have one, talk to one. Businesses need professionals to help guide them, and this is your personal business.
“Now, pay living expenses like housing, transportation, insurance, all the things that are vital. No one else knows what your personal business is-it is, after all, private. Pay those expenses.
“Next, budget what you will spend for emergencies, groceries, clothing and fuel. Understand that this area is where it can get tricky. If you do not know difference between what is takes to make sure the household runs and what is personal fluff, learn it.
“Notice I said budget for emergencies. This is another tricky area. How many of you know for sure you will have a flat tire this month? No one? How many of you feel you will have a flat tire sometime on a vehicle you own? Then you should have at least the cost of a replacement tire in your emergency account. How about a dryer? Your deductible amounts for insurance? Okay, you know where I am going with this, don’t you?
“The point I am trying to make is, unless you save money and buy investments, you will always have little or no net worth. It is the underlying principle of floccinaucinihilipilification. The transactions prove the principle. At the time of the sale, the buyer believes the good or service bought is more valuable than keeping the money. In the buyer’s mind, the money doesn’t have the same, or equal, value as the good being purchased. And, if a buyer continually spends all his cash, whether for goods, loans or amusements, it becomes apparent that cash has little or no value to that consumer.
“And that, my friends, is The Floccinaucinihilipilification Syndrome explained.”
from Finance Matters! The Floccinaucinihilipication Syndrome copyright 2011 by Leann Voss, IYR, LLC