Introduction
In recent times, I’ve been contemplating the concept of consistency between our thoughts, words, and actions, a lesson I inherited from my father. He often pointed out that people’s inconsistency leads to numerous conflicts.
The Incongruence Between Desires and Actions
In my experience, he was right. Many issues stem from this incongruence.
For instance, there are individuals who express a desire for a worry-free financial life, envying those with more money and financial security. They wish to live similarly.
However, they act contrarily: overspending, living in debt, constantly having outstanding bills, and thus unable to save.
This scenario is prevalent in the middle class, not only in Mexico but worldwide. These individuals, given their income level, have a certain economic capacity. They can afford flat-screen TVs or interest-free trips. They can make monthly car luxury payments with a five-year credit. Yet, they often do so without considering the consequences.
Case Studies
Case 1: The High-ranking Executive
I’ve shared several such cases in this space. One that comes to mind is a high-ranking executive of a US transnational company who lost his job following a merger. He received his legal severance, a retirement savings fund, and exercised stock options. In total, he walked away with several million pesos.
He believed this amount would suffice until his pension. However, the money ran out in less than a year. He hadn’t accounted for mortgage payments on his house, two cars, multiple credit cards, and additional commitments representing more than 60% of his net monthly income.
He had no other savings. He was left with nothing. I learned this because he sought my help to connect him with contacts within the company where I worked, hoping to secure a similar position. His options were dwindling rapidly.
Case 2: The Foreign Expatriate
Another case involves a foreign woman who came to Mexico with an expatriate contract to open a branch of her publicity company. She earned a substantial income.
However, she was in a dire financial situation. She had maxed out several credit cards, had two salary-based loans, and other commitments representing over 60% of her net monthly income. She barely had enough to cover rent and little else.
She did have some savings, but no investments. These were in the form of whole life insurance policies that not only incurred significant financial obligations but also failed to deliver the promised returns. As I’ve explained, these products offer a real return, at best slightly above inflation (though there are cases where the real return is negative). These products are sold by projecting inflation rates, creating an illusion of substantial future earnings.
The Illusion of Financial Security
These cases illustrate individuals earning well and appearing affluent but, in reality, owing everything. Their “financial security” is merely an illusion—a significant incongruence.
The Disconnect Between Earnings and Wealth Accumulation
Many people have the capacity to build wealth. However, they fail to focus on its construction. They believe they lack the means due to their accustomed lifestyle, earning well yet spending more than they make.
They acquire luxurious items like cars and trips, which, without proper care, can quickly diminish or become burdensome.
The Simplicity and Complexity of Personal Finance
Personal finance concepts are straightforward, but their application is not. Our desires, habits, prejudices, emotions—all aspects of our humanity—greatly influence this process.
Key Questions and Answers
- Q: What is the secret to building long-term wealth? A: The secret is saving a portion of your income and investing it in instruments that can generate real returns (above inflation) over time.
- Q: Why do people struggle to maintain financial consistency? A: People often fail to align their financial actions with their desires, leading to inconsistencies between their aspirations and reality.
