You're Richer Than You Think. Really?

The Ways We Save 4 This & That: Home Edition

You're Richer Than You Think. Really?

People are in denial. Helped in large part by their access to credit, many people think they can afford stuff they can't. And the idea that they are richer than they are leads them to sink deeper and deeper into debt.

According to the Canadian Payroll Association, almost 60% of Canadians are living paycheque to paycheque, which leaves us only marginally better off than our American cousins. Dave Ramsey says that 70% of Americans are in the same boat. And an article in USA Today last week says that Americans are very worried about running out of money in retirement.

So are you among the 40% of people are actually able to set something aside for the future? Or are you caught up in The Myth of Richer and spending money as fast as you make it? Are you spending money on credit and going further into debt? Has your net worth actually moved up or down the past five years?

I receive letters every month from people who tell me that they've done a budget and it balances but that they always seem to run out of money. Hey, making a budget isn't an exercise in theory, it's an exercise in practice: you have to live within the budget for the exercise to have been worth the effort.

And this is very often where people's delusions come into effect full force. While, in theory they plan to spend $600 a month on food, practice is another thing completely. They run out of stuff and head to the stores to restock. Friends pop over and they run to the stores for supplies. The kids are having a bake sale at school, so they run to the store to do their bit. And laundry soap goes on special, so they leave having stocked up. And then there are the unconscious shopping trips they make: the extra bag of milk at the convenience store where they also grab a candy bar and two bottles of juice. The salad dressing they forgot on the last trip that takes them back, which gives them the opportunity to add the croutons, six tins of tomato sauce (on special) and a brick of cheese to their cart.

The jars help. When you take a certain amount of money out of the bank and stick it in a jar on your counter, you tend to be more conscious about what you're spending since you can actually see the money running out. That's the "magic" of the jars: they remind you that money is an exhaustible resource. So the jars are the very antithesis of credit, which wants you to believe you are richer than you are because you can pay for anything you want whenever you want it.

And this is where you've been sold a pig in a poke. You aren't paying for anything when you put it on credit. That vacation on your LoC, it isn't paid for yet. Those shoes on your credit card, NOT paid for. The groceries you put on your card for the points, but didn't pay off in full when the bill came in: NOT PAID FOR. When you put things on credit, you aren't "paying" for them, you're promising to pay for them at some point in the future. And since someone else is paying for them on your behalf – they're renting you their money – you're going to pay for the privilege of not having to pay for the stuff you brought home.

So here's my big question: If you can't afford to pay for the stuff you are consuming today, how can you be richer than you think? If you're carry any balance on your credit cards or on your line of credit, you're not living within your means, and you have fallen prey to The Myth of Richer.

So what are you going to do about it?

You can sit and wring you hands. Yes, it's hard. Yes, there's lots of paperwork and (oh no!) math involved. Yes, you're going to sweat bullets or cry buckets.

You can decide that giving into the Myth of Richer isn't working for you and give up the illusion, learn to live within your means, and actually start building your net worth.

No one can do this for you. I certainly can't do all the budgets and debt repayment plans I get requests for every week. And if you're looking for a resource to show you how to make this better, good luck! There aren't a whole lot of people in the business of hauling your sorry balance sheet back into the black.

But there is YOU.