Why The Rich Don't Celebrate Labor Day
On moving from being a laborer to being an investor
When I was a young boy, my father worked hard. He was a teacher who worked his way up to the head of education for the sate of Hawaii. A highly-educated man, he spent a lot of his free time taking graduate courses at universities Stanford University, the University of Chicago, and Northwestern University. Time off was hard to come by for my father, and when it did come, he was often too exhausted to enjoy it much.
By conventional wisdom, my father was successful. His education earned him a high-paying, secure, and high-profile government job, as well as the respect of those who pay attention to such things. Yet, he struggled financially all his life, working harder and harder to keep up with the rat race.
The history of rich dad and poor dad
My best friend as a kid was Mike. Mike's dad wasn't highly educated. He didn't have a bunch of advanced degrees from renowned universities. And he didn't have a safe, secure job. Mike's dad was an entrepreneur.
While Mike's dad worked hard, he always seemed energetic. And when he wanted to takes some time off, he did, no questions asked. Mike's dad prospered and didn't worry about money, other than to figure out where to invest his profits next.
This contrast between my father and Mike's dad is what led me to call my father my poor dad and Mike's dad my rich dad. These titles were less about where they stood in terms of earnings, though Mike's dad made substantially more than mine, and more about where they stood in terms of mindset.
How was your Labor Day?
This last weekend, the US and Canada celebrated Labor Day. For many people, I'm sure it was a welcome rest from work. After all, who doesn't enjoy a three-day weekend?
I've always found Labor Day to be a curious holiday. It is a celebration of the contribution that workers give to the economy, a time of rest dispensed by business owners to their employees who tirelessly toil.
I appreciate the contributions of the workforce to the economy as much as the next person, but I find it a shame that many people come back from these types of holidays saying things like, "I could have used one more day," or, "I need a vacation from my vacation."
The problem with Labor Day
The problem for most employees is that even on their days off, they find no rest. This is partially because they often use the time off to catch up on things in their personal life. So the "time off" is really just an exchange of one type of work for another. And it's also partially because most people are so wrapped up in the rat race, working to pay for a lifestyle they can barely afford, that even when they're resting, the stress of their financial life weighs heavily on them.
That's how it was for my poor dad. It seemed no matter how hard he worked, and no matter how much he made, he could never get ahead. It killed his soul and crushed his spirit.
Or take Rose and Ron, who were recently profiled in The Globe and Mail. Between the two of them, Rose and Ron make $295,000 a year. Yet, they bemoan the fact that they never seem to get ahead. "How do we put aside enough money for both our kids' education and our RRSPs while still meeting our monthly obligations?" asks Ron. "Currently, we do not save any money each month for emergency funds. I'm worried that if we have a major home issue, we won't be able to cover the costs," he says. "How do we curb our spending? It feels like there's a never-ending stream of expenses," he tells the writer, Dianne Maley.
Poor advice for "poor" people
Dianne's advice is the usual fodder given to the financial illiterate. "Look for ways to cut spending now. Use corporation's share structure to make dividend payments to adult children to help cover higher education costs. Consider using an insurance policy to generate tax-free income for Rose. Review insurance and investments."
Mostly it amounts to spending less and relying on paper assets, of which you have little control. Again, like my poor dad, the problem is not money…it's mindset. At $295,000 a year, Rose and Ron make plenty to invest for a financially free future. The problem is that they are in the rat race-they have a poor mindset-and until they change their mindset about work and money, they will never get out.
Moving from laborers to investors
A much better plan for Rose and Ron would be to reallocate their expenses and to cut spending on liabilities (they currently spend $3,000 a month on discretionary expenses) and to budget an "expense" for investing in cash-flowing assets. This would also require them to reallocate their time and some money to invest in financial education so that they could invest wisely. But it is a plan that would give them much more control, move them towards financial freedom, and most of all, give them true peace of mind.
In short, it would move them from laborers to investors.
If you found yourself dissatisfied with your Labor Day, there's good news. It's now a full year until the next one. What will you do in the next year to ensure you move from a laborer to an investor?