When I was seventeen, I wanted to make a big impression on Mary Hadalamb.  She was a big Beatles fan and they were coming to Detroit.  Tickets were $40 each.  The whole evening was going to set me back at least $120.  Did I have the cash?  No, not even close.  My total Net Worth, at the time, was $38.75.  How did I know this?  I checked my pockets.  Well, I had another $4.75 in the Christmas Fund account at the bank but that was it.  The law of limited resources very clearly said, we could catch a movie and follow up with a fine dinner at the Big Boy and not much else.  The really bad news was that Thurston Howell, III did have sufficient capital for the Beatles and Mary accompanied him to the concert.

So it was easy to track our capital before massive technology took over our lives.  It primarily was driven by your cash reserves.  You checked your pockets and your bank accounts.  Using that information, you could make great decisions on how to spend your money and how to get more of it if you ran low.  If you didn’t have the cash, you were not going to the concert.  At seventeen, we were all outstanding money managers. 

Starting my Freshman year at Eastern Michigan, I had three key financial goals.  Sufficient funding for dates, $1.85 to buy a six pack of Pabst Blue Ribbon whenever I wanted, and $50 dollars to cover a bad day of shooting pool.  The business plan for Mike Inc. clearly showed that I needed to work full time all summer, aggregating a cash position and Net Worth of $2,500 on August 31.  In addition, I still needed to augment my cash flow during the school year with part time employment.  No fine dining with Ms. Hadalamb after Thanksgiving without income from a part time job.  Fortunately, Elsifor Moving and Storage provided the perfect employment opportunity.  I drove a moving van full time during the summer.  Lots of lucrative overtime.  The moving business slowed significantly during the school year.  Symbiotically, part time work, scheduled around my pool shooting class schedule worked very nicely for both Elsifor and Mike Inc.

Things were simple. We really didn’t have many options.  No one was going to give us a credit card and no reasonable bank was going to lend us anything.  So the daily decision making on how to deploy our money was very simple.  What expenditures were required?  Are there any funds left over?  Yes!  What would we like to do with the extra funds?  We then needed to take concrete steps to actually spend the money. There were no hidden disbursements. We paid cash or wrote checks for everything.  After we spent the money, we knew how much was left in our pockets or checking account.  We had a solid understanding of our near term cash needs and of our total Net Worth.  I always made sure that I had a week’s worth of PBR reserves.  In addition, the one Benjamin disaster fund for bad pool shooting was tucked into the corner of my wallet.     

Fiscal responsibility was easy to execute in this environment and most of my friends did a great job of managing their financial resources.  

Fast forward to the 2020’s.  It is almost impossible for anyone to competently manage her or his finances.  Cash is no longer king.  In fact cash hardly even matters.  I have had the same $115 in my money clip for eighteen months.  If we want to purchase something, we flash our phone, tap the credit card, or stick an item in our on line shopping cart and go to checkout.  If there are no red lights, the transaction is processed.  About eleven different IT systems instantaneously run through various aspects of the transaction and some of our capital pile is shifted to the vendor’s pile.  What does our pile look like before and after this transaction?  It’s impossible to tell.  Reviewing the Net Worth economic indicator is completely excluded from the process. 

Vendors, banks and technology companies tell us that all of the electronic processing is designed to improve our lives.  Balderdash!  It is designed to improve their profits.  Little clerical work is required to sell something and collect the funds.  Most of the required effort is actually performed by the customers.  “You don’t really want to send us a check every month.  Just give us permission, and we will, electronically, extract those funds from your bank account or charge your credit card.  You won’t have do anything.”  So I have authorized at least thirty different vendors to automatically extract assets from my pile and put in theirs.  Maybe it happens when I specifically buy something.  Often it is a monthly recurring process that happens until I officially tell the vendor to stop. Some payments are identical monthly charges.  Others are variable.  I have authorized at least thirty vendors or service companies to reduce my Net Worth every month.

All of the green lighting and approval processes are simply directed to whether or not I have sufficient funds or credit to pay for each of the transactions.  “Is there room on your credit card or enough cash in your bank account to cover the ACH?  Yes!”  We get the screen showing a green checkmark and the words “Good News! You are Approved!”    

That whole financial process that allowed me to evaluate the value of the transaction and the impact on my pile before I spend the money is gone.

I knew that I could not take a date to see the Beatles for $120 dollars but I just arranged an outing to see Taylor Swift for $8,500 dollars.  Can I afford this?  Who knows!  The automation accepted everything so the deal is done.  Can I actually pay this off at the end of the month?  If not, my $8,500 just got 25% bigger because of credit card interest.  Potentially, I just spent $10,125 to go to a concert.  Do I need to borrow more money to make the house payment, do I skip funding the 401 k again?  Without a day and a half of financial analysis, I can’t put the pieces back together.  

A further complication is that some of these expenditures don’t require real cash.  I have to use Apple Pay, PayPal, and three other pseudo currencies.  So far I have avoided Bitcoin but it is a matter of time until my physician says “If you want this bypass surgery, you need to pay me with Bitcoin”.      

The day of reckoning occurs after I have spent my money and the credit card bill arrives.

DANGER WILL ROBINSON.    

Yikes!  Amex is $15,402 this month and Visa is $11,307.  I can only pay half of that.  Would have been nice to get a “low capital warning” instead of a simple green checkmark when I was spending all of this money.  By paying half, I am borrowing $13,000 at 25% interest rates.  Even my uncle Vito doesn’t charge this much!

The good news is that having trouble with your Visa bill is not likely to incur bodily harm.  Getting behind in payments to uncle Vito will.  But there is still a lot of pain and challenge in overextending credit card debt.  It is very easy to creep up to the card limit.  Compounding $30,000 of credit card debt at 25% can generate huge numbers very quickly. 

If you decide to pay off the cards with an early withdrawal from your retirement account, more bad things happen.  First the money you take out is immediately taxable and you pay a 10% withdrawal penalty.  For most of us, that is at least another 34% assessment.  In addition, not maximizing my IRA contributions may make it very difficult to retire.  If I don’t make a contribution this year or, even worse, take money out of the retirement account, I may be driving a truck again at age 75.

Before technology, internal control over my finances was proactive.  I knew what impact spending money would have on my Net Worth before I actually made the disbursement.  Technology has made it incredibly simple to spend money but extremely difficult to understand the impact of all these expenditures on our accumulated wealth.  The only weak, back end, control I have is knowing how close I am to the spending limit on my credit cards.  Six or seven hours of analysis will put sharp focus on my financial standing.  However, that is a little difficult to do when I am waiting in the queue for Rose Bowl tickets.   

So, in the 2020’s, spending habits have changed.  When we elect to buy something, anything, we never assess the impact of the decision on our pile of capital (Net Worth).  We just wait to see if the green checkmark and the word “approved” appears on the payment screen.

I haven’t seen Mary Hadalamb for a while.  If she wants to go to The Beatles Revival Concert, I think I need to do a lot more financial research before I hit the “Proceed to Checkout” button.