“Money isn’t important.”
I hear it frequently—most recently and painfully from someone very close to me.
You see, in my experience, the people who don’t value money are the people that don’t have any. I used to be among them.
Our culture has a split personality when it comes to money. On the one hand, society as a whole is frequently admonished for having an over-developed lust for gold. Anyone in pursuit of the almighty dollar is accused of greed and a hatred of both people and the planet. The moment someone accumulates a bit of wealth, the vultures begin circling, threatening to take it all away. On the other hand, the vast majority of people in Western cultures don’t actually have that much wealth and are finding it difficult to make ends meet. People are clamoring about wage stagnation and the need for a higher minimum wage. Many of our retirees are living on a paltry government stipend. Basically, people want more money.
So, which is it?
Know Your Enemy
First, we need to distinguish between the ultra-rich—corporate entities, families, and even individuals in the top 0.1%—and the average person just trying to support themselves and their families. Most of the anti-wealth vitriol is really intended for the uber-wealthy. But much of the detritus lands on any individual or business person trying to make or save an honest dollar.
I am not making any particular statement about those in that top tier. I think they probably all started out much the same way as you and me—or at least their ancestors did. But they really aren’t the problem that you are facing right now. The reality is that it is completely achievable for the majority of households to build a net worth of $1,000,000 or more over the course of a working lifetime. The vast majority of people don’t. In fact, I believe they simply won’t.
This belief that money is unimportant or somehow even evil is a handicap that prevents most people from living the lives that they imagine.
Your enemy isn’t the rich; it’s you.
The problem stems from the over-simplification of a very important principle: Money is not the most important thing.
If you have children or have ever had a sick family member or close friend, it will be very clear to you that there are things in life more valuable than money and possessions. Health. Family. Relationships.
In addition, selfless passions and pursuits inspire us with their nobility. My mother spent years lobbying for women’s rights in Canada and served on the board of directors for a shelter for battered women. She also helped start up a new Habitat for Humanity affiliate; during eight years in the roles of President and Volunteer Coordinator, she oversaw and participated in the building of six new homes for people who wouldn’t otherwise have qualified for a home loan.
Her contributions have made the world a better place. She is my hero.
And so, there are many things on which we naturally and correctly place a higher value than money.
Basic Needs for Survival
Yet this coin is like all others: It has two sides.
Anyone who has taken an introductory psychology class will be familiar with Maslow’s hierarchy of needs. In it, psychologist Abraham Maslow classified human needs by relative importance. When a need lower down the hierarchy fails to be met, it becomes difficult or impossible to meet needs of a higher order. At the very base of this hierarchy are the things needed for life itself: food, water, shelter, clothing.
There are, of course, a number of ways to obtain what is required to satisfy these needs. You could hunt, fish, gather wild berries, or grow a garden to obtain food. In today’s society, however, specialization allows a few people to perform these tasks for the many. Others who provide value to the world in different ways can convert that value into the basic necessities — the mechanism for this conversion is money.
And so, the masses get jobs, go off to work, get paid, and consider the sticky problem of basic human needs to be solved.
But the solution is temporary.
What happens when you stop working? Whether you become ill, lose your job, or simply want to rest your weary bones, there is a problem. As long as you are living, you must meet your basic needs. But if you stop working, the money stops coming in, and you are no longer able to pay for these essentials. The problem doesn’t go away if you choose to hunt and gather berries; when you become unable to do so, you will no longer have food. Even squirrels understand this principle and set aside nuts for less prosperous times.
Perhaps Robert Kiyosaki said it best in his classic book Rich Dad Poor Dad:
“A job is really a short-term solution to a long-term problem” (45).
And so, our ability to meet these most basic of human needs is tenuous. Much of the population lives hand-to-mouth in a precarious existence on the brink of financial disaster.
The obvious next step is to seek a more permanent solution.
Safety and Security
In his book Business Secrets from the Bible, Rabbi Daniel Lapin outlines a paradigm that describes how people have both physical and spiritual needs. Physical needs are similar to those identified as physiological needs by Maslow: food, water, shelter, clothing. Interestingly, Lapin demonstrates how the physical world can meet certain kinds of both physical and spiritual needs, while recognizing that there are needs that can only be met by the spiritual (117).
The world provides food, water, shelter, and clothing in a physical way. In other words, these things are tangible and are obtained from the physical world rather than the spiritual. No matter how in touch with your spiritual side you are, you will eventually starve to death if you do not eat.
Critically, Lapin also identifies spiritual needs that can be met by the physical world. Savings, financial security, and discretionary income fall into this category.
Consider the emergency fund. This is basically some money set aside in savings. When life presents any number of difficult situations, such as job loss, medical concerns, or the need to suddenly make major car repairs, you have the ability to deal with them with minimal disruption to your life.
What about a trip overseas to visit a relative who has become suddenly ill? Without savings, any of these crises could create a knock-on effect on your finances. You pay for the car repairs, but now you’re short on funds and can’t make the mortgage payment. Suddenly, your ability to provide shelter for you and your family is in jeopardy.
Not to mention a job loss. When you are unprepared financially, a job loss can change your whole life, causing you to lose your home and maybe even your relationships as a result of the stress and upheaval.
I can say from personal experience that the establishment of an emergency fund containing enough money to cover several (3-8) months of expenses actually changes you. There are things that can and will happen in life, about which my wife and I no longer need to worry. This money doesn’t make us better people. But it does make us more resilient to unexpected events. And this in turn reduces stress. Reduction of stress has short-term benefits for our marriage, parenting, and job performance. It also has long-term benefits for our health.
But what if something should happen that is more costly than your emergency fund can absorb? Fire, theft, natural disasters, major accidents, health care, surgery—the list goes on. Many of these calamitous events can’t be covered by a few thousand dollars.
The answer, of course, is insurance. Many of us don’t enjoy paying insurance premiums—often, we never cash in on the benefits. But the reality is that the monthly payments buy peace of mind. Without it, a single accident could ruin you financially. Worse, you might not be able to pay for a necessary treatment. This could cost you your life.
As you get older, the need for insurance—particularly healthcare—only increases.
But if we only do the minimum to fulfill basic human needs and stave off disaster, we end up leading miserable lives.
I believe it is universal for humans to aspire to a better situation for themselves and their families. It is for this reason that we buy homes to live in; the need for a sense of safety drives almost everyone to purchase in the best neighborhood they can afford.
It is also natural to want to provide as much for our children as we can manage. Education tops the list. But experiences such as family vacations are also common desires.
And who doesn’t want at least a few of the nicer things in life?
Ultimately, financial security means financial independence—the ability to live on the income from your investments.
One of the major objections to wealth accumulation is that there are those who need that money more than the person who has accumulated it. I find this an interesting argument. First of all, the people most likely to consistently donate to charity are, of course, those who actually have money. The more you have, the more you have to give.
It is true that charity requires character—the ability to see past your own wants and needs to the needs of those around you. And the willingness to sacrifice something of your own to the needs of another. But it also requires having something to sacrifice. If you have very little, you can only help a little. If you have more, you have more to offer.
Donating one’s time and expertise are, of course, extremely valuable. But many charitable projects require money, and it is the wealthy who provide this capital on a sustainable basis.
As I’m sure you’re well aware, all of these things—food, shelter, clothing, savings, insurance, a home, education for your kids, a little extra to spend and invest—cost money. Yet where is the greed?
While we’re on the subject, let’s talk about greed for a moment. There is absolutely a line that, when crossed, constitutes greed. But that line is blurry and based on no objective standard.
If you believe that a wealthy person should not have the things that they have, ask yourself a few questions. Do you know how much money they have given to charity in the last year? What percentage of their income does this represent? What percentage of your income have you given in the past year? Is percentage even the most important factor? If you have given $1,000 to charity this year and they have given $100,000, who has done more good?
How many jobs have you created in the last year? Ever?
What percentage of your income have you spent on luxuries?
How much of your time have you spent educating yourself on your customers and their needs?
How much value have you brought to the market place?
The purpose of these questions is not to offend you, but to get you to consider what value other people might be adding to society that you are not seeing—and to consider whether greed lies only in the accumulation of wealth or may also hide in comfortable underachievement.
Now consider the impact on others of not having money of your own.
Do you run out of money before the end of the month? Do you borrow from family or friends to make up the shortfall? Consider the effect that this has on the lives of those you tap for a few bucks just to see you through. They have financial obligations, and supporting you is getting in the way of their prosperity.
Maybe you don’t ask for money directly. Perhaps you are in a position simply to take advantage of the prosperity of others. If you borrow their car, drink their wine, or eat a lovely meal at their house regularly, which you can’t reciprocate, then you are being hypocritical. In this case, it’s not that money isn’t important, it’s just that you don’t have any. You are relying on the prosperity of others to live your life.
The reality is that every single person requires money to get through everyday life. You can moralize all you want, but it is to your own detriment. Money is not evil—it is a basic requirement for survival and prosperity.
The lack of money also creates stress. You want to do something, say, go on a holiday. But you know that this is only going to happen if nothing goes wrong. The moment your car breaks down, you realize that you can no longer afford to go on that holiday.
You also know that if you were to lose your job, then you couldn’t pay the mortgage and the car payment and the student loan payment that you have accumulated. As a result, every little event at work causes you undue stress.
I also understand that money issues may have precipitated the demise of more than one marriage.
On top of all of that, you can’t afford to consider the breadth of your opportunities. How many people stay at a job they don’t like for years or even decades, just because it “pays the bills”? This is financial slavery! And what’s worse, it’s self-imposed.
Money is a proxy for the essentials of life. It allows you to convert your particular contribution to society into those things without the need to be a hunter-gatherer-weaver-builder yourself. And it allows you to help others who are in need. Need will always be around us; would you rather be in a position to help or merely to lament its presence?
Put simply, there is wisdom in accumulating enough wealth to take care of your needs and to provide a good life for you and your loved ones.
Having had those needs met, how many of us can honestly say that we do not want anything more? Who among us would choose to live a miserable life, scratching out a meager living in an unforgiving world? Who among us does not want the leisure time to follow higher pursuits—education, art, travel? Who does not want the ability to visit and spend time with close friends and family who are scattered around the globe?
The very concept of financial independence is to create an environment in which you can meet your basic and discretionary needs, no matter what happens to your ability to work.
I know what you’re thinking: Why is this guy so hung up on money? The reality is that I’m not. As I’ve pointed out, there are many things more important. But when I was growing up, and even into my adult life, nobody talked about money. At least not in a constructive or instructive way. As a result, I knew nothing about it. My choices put not only myself, but also my family, at risk. I talk about money so that others might consider their choices and make better decisions.
The mistake that so many of us make is this: While money is not the most important thing, money is important. Without an understanding of personal finance, you put yourself and your family at risk.
[Editor’s Note: We are republishing this article to help out readers newer to the BiggerPockets Blog.]
Were you taught about money growing up? How do you ensure a balance of financial security and giving back?
Let me know your thoughts on this topic with a comment!