Virtually all welfare is based on need. Ayn Rand sees this as evil, in the sense of the word meaning “that which leads to misery and destruction.” Perhaps this is because she grew up in a communist country and saw the pain and misery brought on by policies that reward need and punish capability and hard work. In the speech by character John Galt, her vision of the perfect man in Atlas Shrugged, Galt points out that such a philosophy of sacrifice would make one who gives food to another’s child, while one’s own child starves, noble. Such behavior is self-destructive and suicidal, John Galt surmises.
Certainly having no aid for others isn’t a society in which most would want to live. Everyone needs help once in while, whether stranded at the edge of the road or involved in a house fire. Things happen which cannot be predicted. Still, many hardships can be predicted, or at least the risk can be seen ahead of time.
Perhaps it would be better to provide assistance based on capability rather than need. Able-bodied individuals in an environment where jobs are available would not be assisted, while one who is physically disabled would. This is a fairly obvious choice that not only reduces the burden on society, when compared to the normal welfare state where many able-bodied individuals choose not to work and are therefore “in need,” but also benefits individuals by driving them to a good behaviour that creates a greater sense of self-worth, i.e., hard work.
It gets more difficult, however, when individuals who had the opportunity to be self-sufficient have made choices that have placed them in a position where they cannot take care of themselves. The teenager who has children out-of-wedlock early, and therefore never finishes high school and can’t get a job that can support her and her children. The people who get addicted to methamphetamines, heroin, or alcohol and cannot hold a job. The individuals who spend every dime while they are working and then fall ill and are forced to retire because their bodies are too weak to continue.
Perhaps not having a support system for individuals in this situation would discourage some people from engaging in the behaviors get them into these situations. If people knew they were on their own to get food and shelter, maybe it would help them kick a drug habit or have some retirement plan. Unfortunately, there are many people who don’t think about the consequences of their behaviours until it is too late, so there would still be a lot of people in trouble.
While drug abuse and teenage pregnancy are extreme examples, what is considered “normal” behavior – living up to the edge of ones income – is actually not that much less risky. People who take out a home loan and a couple of car payments that consume 90% of their take-home pay probably consider themselves far better off than the transient sleeping under the bridge, but they are a lot closer to that fate than they probably realize. How many missed paychecks are they away from seeing their home repossessed or their cars towed away? They may even need to time the payment of bills to make sure sufficient resources will be in the checking account to avoid a bounced check or automatic draft.
Most people would hate to wait to buy a car until they could pay cash, or give up the expanded cable package, or buy a 1800 square foot home they could easily afford instead of the 3500 square foot one with the bonus room and gourmet kitchen that stretches their budget. Making these choices is difficult when everyone around you is taking out big loans and putting everything on payments. But life is just so much better when your spending is sustainable and you do things to reduce your risk.
While bad things sometimes happen when people have done everything right, we usually end up where the path we choose takes us. You will need to replace that roof someday, and you will end up spending a lot of money on interest if you wait and finance it. You will need to send the children to college in about 18 years, and they will come out with insurmountable student loan debt if you haven’t saved and they don’t work quickly through college. You will want to retire someday and you will have no money to live on if you don’t start putting away money now and continue to do so for most of your working career.
Be smart with your spending and life will be so much easier.
1. Buy used cars for cash instead of taking out a car payment and you’ll have more than a million dollars more to spend over your lifetime.
2. Put away money in a college savings account starting from when the children are born and you’ll have some money for college. If you are a millionaire when they are ready to go, spring for the Ivy League private college. If not and they don’t get a substantial scholarship, send them to the state school instead. Maybe even consider a community college for the first year while they work through entry-level classes. Get them through debt free and they’ll start their working lives on stable footing.
3. Put 10-15% of your salary into retirement accounts and you won’t need to worry about a comfortable retirement.
4. Buy a home using a big down payment (at least 20%) and use a 15-year loan so it will be paid off when you’re in your forties. Buy a home with payments of less than 25% of your take-home pay and you won’t need to struggle to pay the mortgage and pay cash for other things.
5. Get enough term life insurance to replace wage-earners’ salaries and pay for a live-in nanny and other household help should there be an untimely death. This needs to continue until the home is paid off and there are enough savings and investments to replace income. If you follow the above advice, this will be by age 45 or 50 at the latest.
Choose a path that leads to a place you want to be.
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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.