The Math Doesn’t Lie
I had a poker instructor who was a math genius named Nick Brancato. He’s a great guy and an amazing poker player. They call him “Nikki Numbers’ because of his ability to calculate pot odds in his head, on the fly. In my poker lessons with him he would always say ‘Robert, you can’t beat the math.’
Nick was referring to probabilities, aka the odds of you drawing a card you need on ‘The River’ in Texas Hold ‘Em, for example. If you dump your whole stack on something that has a 10% chance of happening, 90% of the time, you are going home a loser. He would point this out and say, ‘you can’t beat the math’.
As I have morphed from a broke schoolteacher to full time real estate investor who has paid off a lot of homes, I spent a great deal of time investigating why people all seem to have the same financial problem – overwhelmingly, they are all broke, and they are living paycheck to paycheck[1][2]. In my opinion, it comes down to three main issues, as follows:
- Most people give half of their take home pay, or more, to taxation(Federal and State Income tax, Social Security Tax, tax on all consumable items, etc.)
- Most homeowners elect to use 30 year loans on their primary residence, which is a total loser debt instrument designed to keep borrowers in debt their whole lives[3].
- Dollar Inflation, a stated goal of The Federal Reserve, destroys Americans’ ability to purchase consumable items, while they see little to no commensurate pay increase at their jobs annually – making the spending power of what little take home pay they have less and less each year[4].
My first book, The Short Term Retirement Program, discusses this in great technical detail, but it bears exploration here – that, in a nutshell, you can’t ‘beat the math.’
So, in all likelihood:
IF you are employed and subject to Federal, State, and Social Security Tax withholding, and
IF you own a home and have a 30 year loan on it, which presumably is your biggest monthly expense, and
IF you are a United States citizen who works and operates in a US Dollar economy,
Then the mathematical probability of you being broke and living paycheck to paycheck is about 76%, according to the articles I cited above, which is about ¾ of the US Population at the time of this writing.
This isn’t designed to make you feel badly, or suggest you are doing anything wrong. In fact, you are in all likelihood doing what people are TOLD to do from a young age, i.e., get a ‘good secure job’, ‘get benefits’, ‘buy a house’, ‘use a 30 year loan, it’s the most affordable note payment’, and so forth.
The only problem is that, if your goal is to be financially free, all of this is bad advice.
How do I know? Because over 75% of Americans are engaged in this futile exercise and are broke.
If I could take a sample of thousands of American working families, they would all cite the same issues for their insolvency. The biggest complaint(I am speculating but think I am right here) would be ‘there just isn’t enough money left over at the end of every pay period.’
How could there be? Half of you check goes to taxes, and then (generally speaking) 40% of your take home pay goes to a 30 year note(which pays interest only on the front end, for the first 14 years) and the rest of your dollar purchasing power fades into nothingness through dollar inflation. And, keep in mind, this applies to many working people ACROSS EARNING SPECTRUMS, i.e., 30k/year earners to 200k/year earners. Everyone is giving away half of their check to taxes, then pledging 40% of what’s left of it to a 30 year loan. This mathematical certainty across the population of the United States(those who elect to work) – everyone is doing these things, and overwhelmingly they are insolvent, meaning, living paycheck to paycheck.
Think about the last raise you got. Did it REALLY help?
The statistics don’t lie.
Remember? You can’t beat the math.
[1] https://www.cnbc.com/2017/08/24/most-americans-live-paycheck-to-paycheck.html
[2] https://money.cnn.com/2013/06/24/pf/emergency-savings/index.html
[3]http://www.freddiemac.com/perspectives/sean_becketti/20170410_homebuyers_communities_fixed_mortgage.html
[4] https://www.federalreserve.gov/faqs/economy_14400.htm
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