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Why The Rich Don’t Celebrate Labor Day

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?

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On moving from being a laborer to being an investor

Two curious events collide in the month of September. The start of the month kicks off with Labor Day—a celebration of employees' contributions to the economy, and the rest of the month celebrates self-improvement because September is Self-Improvement Month.

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 state 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 and lived out the very ethos of self-improvement. 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 take 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.

Like my dad, Mike’s dad also lived out the ethos of self-improvement. But instead of getting graduate degrees (or any degrees at all!), he read a lot on how money and investing worked, attended seminars, and learned about business from mentors.

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.

Observing the contrast between my poor dad and my rich dad taught me that there are two different types of labor and self-improvement.

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 profiled in The Globe and Mail in 2016. Between the two of them, Rose and Ron made $295,000 a year. Yet, they bemoaned the fact that they never seemed to get ahead.

"How do we put aside enough money for both our kids' education and our RRSPs while still meeting our monthly obligations?" asked 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 said. "How do we curb our spending? It feels like there's a never-ending stream of expenses," he told the writer, Dianne Maley.

Rose and Ron aren’t alone. A recent article in Bloomberg proclaims,

“More than a third of Americans who earn at least $250,000 a year say they spend nearly all of their income on household expenses, according to a new survey by Pymnts.com and LendingClub Corp. That means a significant chunk of the top 5% of earners in the country feel like they are living paycheck-to-paycheck…”

Poor advice for "poor" people

The Globe and Mail’s Dianne Maley gave Rose and Ron advice that is the usual fodder given to the financially 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—and even those making $250,000 per year—Rose and Ron, and people like them, 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—which is really a self-improvement activity—they will never get out.

True self-improvement: Moving from laborers to investors

Those that spend the month of September improving themselves will most likely focus on things like exercise, diet, hobbies, etc. These are all good things, but the best form of self-improvement is to change your mindset about money and investing, about what constitutes truly valuable labor to begin with. Everything else will follow from those changes.

A much better plan for Rose and Ron would be to reallocate their expenses and to cut spending on liabilities (they were spending $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.

Self-improvement starts with mindset

A number of years ago, there was a study done of rich and poor all around the world to find out how people born into poverty eventually became wealthy. The study found that these people, regardless of where they live, possess three mindsets.

  1. They maintain a long-term vision and plan

    The study found that these people thought and planned for the long term and knew that they would ultimately achieve financial success by holding to a dream or vision.

  2. They believe in delayed gratification

    Rather than get everything they wanted right now, these people were willing to make short-term sacrifices to gain long-term success, which is the basis of delayed gratification.

  3. They use the power of compounding in their favor

    Albert Einstein was amazed at how money could multiply just by the power of compounding. He considered the compounding of money to be one of the most amazing inventions. This study took compounding beyond just money, however, and found that knowledge and learning gained from each baby step, each little success and failure, also compounded over the years. People who took no steps at all did not have the leverage of a magnified accumulation of knowledge and experience that comes from compounding.

The study also found what caused people to go from wealthy to poor. There are many rich families who lost most of their wealth after only three generations. Not surprisingly, the study found that these people possess the following three qualities.

  1. They have short-term vision

    Today, I meet people who get frustrated with me because they want me to tell them how they can make more money immediately. They don't like the idea of thinking long-term.

  2. They have a desire for immediate gratification

    Many are desperately seeking short-term answers because they have money problems today caused by consumer debt and lack of investments due to their uncontrolled desire for immediate gratification. They have the lifestyle of, "Eat, drink, and be merry."

  3. They abuse the power of compounding

    Much like the good habits and learning that happens for those who become wealthy by using compounding, those who have bad life and financial habits compound those habits over time. This abuses the power of compounding and leads to long-term debt instead of long-term wealth.

    I find these types of people want the quick answer. They want me to tell them what to do to acquire great wealth, but they need to understand who they must become first. In other words, too many people are fixated on the get-rich-quick philosophy of life. I wish these people luck. They're going to need it.

Change your mind about labor and investing today

If you found yourself dissatisfied with your Labor Day, there's good news. It's now a full year until the next one. That means you have plenty of time to change your mindset about labor and investing, to put into action true self-improvement. What better month to start that Self-Improvement Month?

What will you do in the next year to ensure you move from a laborer to an investor?

Original publish date: September 07, 2016

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