My family didn’t move to the ghetto when we relocated from Brooklyn to Detroit. But by the time I moved out of Detroit, my neighborhood had a large amount of crime — it had become the ghetto. Even if I had spent my entire childhood in the most decrepit ghetto in America, it’s irrelevant. It doesn’t matter where you come from — what matters is where you’re going.
While education can help one achieve a level of financial success, good financial management can help one enjoy prosperity for an entire lifetime. In fact, good financial management can help future generations of a family capitalize on opportunities, and bask in the joy of success. This requires managing wealth with knowledge, skill, and appropriate risk management. Conversely, poor financial management can wipe out a fortune and potentially destroy one’s life.
I know many people who consistently earn large incomes. None live in the ghetto, but many have a ghetto mentality when it comes to managing their finances. “Ghetto Economics” is not limited to minorities living in urban areas. I can introduce you to numerous suburban white people who are as “ghetto as hell” when it comes to managing their wealth.
Class is open, please take notes. This is Ghetto Economics 101. Your final grade in this class is based on whether you succeed or fail economically. There are Ivy League MBAs who’ve failed this course, while folks who’ve never taken a college class earned an A. It’s not simply one’s level of education that makes them good at managing their wealth; devotion to using good wealth management principles is required.
Yet, probably the most important factor for continued prosperity is one’s ability to manage any emotional propensity to make poor economic decisions. There are PhDs in business and economics who cannot manage their money because emotions dominate their thoughts. This is practically the same as a medical doctor who’s overweight, smokes two packs of cigarettes a day, and never exercises.
If you do the following things, you are “ghetto as hell,” regardless of your income level. Unless you avoid these pitfalls, you deserve an F in this class, and failing this class may lead to failing in life.
1. Spend all of your money and save nothing
One way to help achieve this is to attempt to keep up with the Joneses; that is, buy things because someone you know has them. Another way to achieve this is to become a connoisseur of the finer things in life when you can’t afford them: expensive automobiles, McMansions, expensive vacations, and designer clothes.
Even people who earn massive amounts of money can go broke — just look at the latest news headlines. I’m sure you’ll see an article about a down- and-out famous movie star, or a current or former professional athlete who has recently declared bankruptcy. A way to avoid going broke is to maintain a budget and manage your finances meticulously. If necessary, you may need to aggressively alter individual and/or family spending habits in an effort to thrive financially. This may require distancing yourself from friends and family members, and may even cause divorce.
2. Get payday loans or otherwise use credit poorly
By spending money you have not yet earned, not only will you waste money on finance charges, you’re on a path to ensuring you remain broke. Every dollar spent on finance charges is one less dollar available to save and invest for the future. Bad things often happen to good people, but good people make bad things happen to themselves when they spend money they don’t have.
Ideally, the full balance owed on a credit card should be paid off each month. The only debt that is “good debt” is that which earns a greater return than the cost of the debt. Many financial advisors consider the purchase of one’s primary home “good debt,” as a long-term investment in real estate tends to rise in value over the long term (that is, many years). Children should educate themselves on using credit wisely, so by the time they are young adults, they’ll understand the optimal uses of credit, as well as the risks. (Adults should educate themselves on this too.)
Using credit poorly can easily lead to having bad credit; this is not good for any reason. Whether due to a catastrophic circumstance, or living a lifestyle of the rich and famous, bad credit is typically a roadblock to success. This can ensure you don’t quality for credit in the future, and prevent you from being able to purchase a home or vehicle. At a minimum, bad credit may require one to pay an extremely high interest rate when approved for a loan or credit card.
Good credit is often a prerequisite for many job opportunities, as many employers consider bad credit a sign of incompetence. Also, from the point of view of many potential employers, someone with poor credit is a risk to a company. Such individuals are often desperate to dig themselves out of a financial hole, and therefore, lack the ability to focus fully on a job.
Long-term strategic financial planning can help individuals and families avoid financial disaster. Some keys are to have the appropriate type and amount of insurance coverage, as well as a savings plan for the future.
3. Drop out of high school or college
This is a prudent strategy if you aspire to limit your career options and earning potential. The statistics on education and lifetime earning power tell a compelling story of why education is important. Though there are financially successful people who drop out of high school or college (or don’t attend college), I doubt any of the wealthiest people in the world would honestly advise anyone to drop out of high school or college. If I ever meet Bill Gates, I will ask him about this.
4. Rest on your laurels
Some people stop working hard once they attain a level of success. This includes those who think education ends the day they graduate from high school or college: they never focus on learning new things. Many such individuals watch in disgust as the world changes and their nice, safe jobs go by way of the dinosaur — to extinction.
Most often, it is those who continue to expand their horizons who achieve at the highest levels. Whether earning an advanced degree, professional certification, or otherwise enduring the pain associated with striving for a higher level of achievement, one should never rest on their laurels.
If you achieve all of these points, you are well on your way to having a miserable life. If you achieve just one or two of these points, you’re in luck: you still qualify for potential misery. Ghetto economics dominates the lives of many people. In fact, it dominates the spending habits of many local and national governments. Alas, the world has embraced ghetto economics — now much of the world finds itself in peril. Please take my words to heart for your own good: save and invest for the future — and never spend more money than you earn.
“To whom you give your money, you give your power.”
Excerpt from The Janitor’s Sons: A True Story of Hope, Shattered Dreams, and Winning Despite Adversity © 2012 by Gregory Collier. All Rights Reserved.