Straight Talk from Al Jacobs

 

WHY MANY OF US ARE BROKE

My thanks to “Letters to the editor” writer Bill Spitalnic , of Newport Beach, who posed a question that deserves to be asked – and answered. He first lauds our nation for its prodigious wealth of $97 trillion, next calculates the net worth for the median household as being $78,100, and finally summarizes with the query “Why is it so darn hard at times to make the car payment?” The question is meant to be rhetorical. Every household should be able to meet its expenses with no problem. However, I’ve been told that over 50 percent of Americans cannot come up with $400 if an emergency befalls them. Evidently something is wrong; what might it be?

I have an answer to that question … but first a testimonial. In 1963, after serving more than a dozen years in the U.S. Navy, I settled with my new bride in San Jose, California, where I began a job as a real estate salesman, on commissions only. As our total assets amounted to less than $3,000, my wife needed to find a job – and transportation to get her there. A newspaper ad offered a 1954 Chevrolet for sale at $350. After checking the vehicle out, we negotiated the price down to $300, in cash. Though it was ugly, it ran well and provided the transportation she needed.

Now for my response to the question: Why is it so hard at times to make the car payment? It’s for the same reason so many people cannot comfortably meet financial obligations. It’s that they fail to live by a most basic rule: Arrange your affairs so you regularly spend less than you earn. As for transportation, the motor vehicle constitutes the average American's single most important fixation. There’s no product more forcefully promoted or representing such a substantial portion of disposable income than one's vehicle, and the potential for financial dilemma is all too real. The solution: (1) Don’t buy anything you can’t pay for without borrowings of any sort. (2) If a new car isn’t within your budget, search for a serviceable used one. (3) If continuing to use your present vehicle costs less than buying a replacement, don’t make the change.

A final thought: Despite all the consumer guidance in America, too many people are engaged in thoughtless and self-destructive behavior. How you conduct your affairs as a consumer relates to what’s important in your life. With limited resources, embrace thrift and discipline. As your net worth increases, you may modify your conduct.  But these must be deliberate choices. Don’t let the marketers preempt your decisions.

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Al Jacobs, a professional investor for nearly a half-

century, issues a monthly newsletter in which he

shares his financial knowledge and experience.

 

You may view it on http://www.roadwaytoprospertiy.com