If you want to be wealthy

People who want to be wealthy have many attitudes. One very important one is that they are prepared to defer pleasures to build more wealth. In this article, I want to talk about this.

But first, I want to clarify what I mean by wealth. I'm not envisaging some Scrooge character sitting on a pile of gold,  or wealthy plutocrats lighting their cigars with wads of $100 notes. I am thinking about financial independence. The ability to make your own path, and make decisions about the course of your life that aren't controlled by financial considerations. If you are not a believer in wealth, do not write off this article. Hear me out.

Up front cost, long term benefit

If you want to become wealthy, all you need to do is maximise the difference between what you earn and what you spend (where income is greater than expenditure), and invest that difference. Do this for a long time, and you will be wealthy.
Where people struggle is that they want expensive pleasures now, not later. Because of this, their spending creeps up towards (or even exceeds) their income. Thus, they never save money and will never be wealthy. Wealthy people (those who built their wealth) do not do this. They control their spending, keeping it low, while they create capital with their savings -- capital that continues to generate more income for them.

Where to invest?

Investing wisely is critical, and I will not try and advise you. I will suggest, though, that you could consider investing in renewable energy and energy efficiency. These are not investments that yield a dividend in the normal sense, but they will reduce your expenses. In a way, this is better because a reduction in expenses is not taxable. As I've said previously, I estimate the investments I've made at my house to have a ROI of 17.5% -- a rate that may actually increase with time (as the cost of power increases) -- I challenge you to find a similarly-yielding investment with this level of security.

Societies

In the same way as a wealthy individual will invest for the future, so too do societies. I would argue that the preservation of environmental capital is prudent for a society that values its future. I hope it's obvious that an individual or society that is spending its capital cannot expect to be wealthy in the future. (I hope that Australians realise this and don't yoke ourselves to fossil fuels.)

Renewable energy

This idea of investing now to generate future wealth is a powerful reason to invest in renewable energy, which has higher upfront costs, but much cheaper lifecycle and whole-system costs. If we, as a society, can increase our investments in this sector, it will help ensure our continued wealth.

Your investment

If you want to be wealthy, I recommend you do not put your money into a flashy car or a new kitchen or bathroom. I recommend you invest in energy efficiency and solar PV. Unlike fancy renovations, energy efficiency and solar PV will give you more money in your pocket, every month, ever after.


This article was written by Angus Wallace, and first appeared at guesstimatedapproximations.blogspot.com.au

What does "sustainable" mean?

Sustainable is a word we often hear. What does it mean?

Maybe when you hear the word "sustainable" you think about hippies, solar panels, or Priuses. I want to convince you that none of these, or any other value-judgements, are part of it.

Merriam-Webster defines sustainable as "able to last or continue for a long time".

Simply put , if an action (something we do) is sustainable, then we will be able to keep doing it indefinitely. If an action is not sustainable, then we will not be able to keep doing it.

Money

An example that is easy to understand is budgeting money:

"Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery."
Charles Dickens, "David Copperfield"

In other words, it is not sustainable to spend more than we earn. If we try, we will probably be ok for a while (as we draw down our savings, sell things, etc), but eventually our actions will catch up with us and our spending will be reduced (by forces beyond our control). Also, think about the likely suffering that will occur in this process: as we owe money to our friends (debt), get evicted from our house, etc.

This seems so simple: spend less than you earn. How is it that so many people get into deep financial trouble by breaking this simple rule?

The reason is that life is complex. It is not always obvious that we are in the process of spending our capital to prop up an unsustainable lifestyle, or accumulating debts that can't be repaid. When it does become clear, people can feel that they are committed to that lifestyle and cannot reduce their spending. This is how people can end up with nothing*.

Fisheries

A very similar process can be observed with fishing. If we wanted to summarize the history of fishing, it would go something like:

• Find a new fish to catch (eg. North-West Atlantic Cod)
• Fish it until the fishery collapses and the fish can no longer be caught (not quite to extinction, perhaps, but until the system is destroyed)
• Find a new fish to catch
• Repeat

It's clearly against the everyone's interests for this to happen, but it has happened time and time again: unsustainable fishing has destroyed people's livelihoods. It wasn't always apparent that the industry was unsustainable and when it became apparent, people felt they had no choice but to continue. I should emphasise that the consequence of unsustainable fishing can be very similar to the consequences of unsustainable spending: poverty in the communities in which they occur.

It can also happen that the point of no return occurs before people notice. Also, even when there is a regulatory body charged with preventing overfishing, it is still very easy for damage to occur.

Environmental Sustainability

Hopefully these two examples show that this is a general principle that can be applied broadly. It certainly applies in general to our relationship with the environment in which we live. Things that we do that are unsustainable will not be sustained. I'm not saying we oughtn't or mustn't continue to do it. I'm saying we won't continue to do it, and that events beyond our control will stop us from doing it -- in the same way as a bankrupt, debt-ridden person will not maintain their high-spending lifestyle, no matter how hard they try.


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* this is clearly an extremely simple sketch of a very complex thing, but I think it covers it in broad strokes.


This article was written by Angus Wallace, and first appeared on guesstimatedapproximations.blogspot.com