Dr. King believed that social inequality was largely derived from poverty. He was a proponent of financial literacy and achieving financial independence. In fact, in 1966 MLK was a signatory to the Freedom Budget, which declared a war on poverty published by the A. Philip Randolph Institute. While the proposal was never passed into law, it provides us important lessons which we can strive for today.
On this important holiday, we honor MLK by discussing some of the financial thoughts of Dr. King.
Living within your means and budgeting
In Dr. King’s “The Drum Major Instinct” sermon, he warned about spending beyond your means. Martin Luther King said that the “drum major instinct” that people have, could be detrimental to their freedom.
What he meant by this “instinct” is that people always want to be front-in-center and showing-off, just like a drum major. One way people satisfy this instinctual feeling is to buy flashy and expensive items well beyond their personal budgets.
To quote Dr. King: “Do you ever see people buy cars that they can’t even begin to buy in terms of their income? You’ve seen people riding around in Cadillacs and Chryslers who don’t earn enough to have a good T-Model Ford. You know, economists tell us that your automobile should not cost more than half of your annual income… But so often, haven’t you seen people making five thousand dollars a year and driving a car that costs six thousand? And they wonder why their ends never meet.”
In his sermon, MLK teaches us an important lesson about budgeting: don’t spend beyond your means. The month of January begins a new year with many New Year’s Resolutions. Why not make your New Year’s Resolution financially motivated? The new start to a year is a perfect time to revisit your budget. Very simply:
- Write down your gross monthly income (before tax)
- Write down your necessary expenses—line-items you must pay no matter your situation, such as taxes, rent, and utilities.
- Is this number smaller than your monthly income? Hopeless yes, because this means you have some room for discretionary spending—items that you can treat yourself to with your leftover income, such as vacations or going out to dinner.
- If not, you need to either make more money—by starting a side-hustle or asking for a raise—or you may need to spend less—finding cheaper rent, shopping around for cheaper car insurance, or refinancing your mortgage and other loans.
As MLK says—if you make $5,000 a year but spend $6,000 a year, you won’t ever make ends meet! Need help with your budget? Download our free budget worksheet by clicking here. Upon completion, contact our financial advisors at Johndrow Wealth Management for additional guidance.
Don’t keep up with the Joneses
In this same sermon, Dr. King warns us to not keep up with the Joneses. Dr. King states: “And they just live their lives trying to outdo the Joneses. They got to get this coat because this particular coat is a little better and a little better-looking than Mary’s coat. And I got to drive this car because it’s something about this car that makes my car a little better than my neighbor’s car.”
Purchasing items simply to outpace your neighbor will never bring you true happiness. In fact, it may stress you out even further, especially if you’re taking on debt simply to outdo your colleagues.
In a study on the outperformance of peers, neuroscientists Michael Lindner and Klaus Fliessbach at the University of Bonn in Germany found that when people outdid their counterparts, they had higher level of activity in the same part of the brain that activates when taking drugs, winning money, or experiencing “schadenfreude,” which is deriving pleasure or joy because of another person’s misfortune.
Quite obviously we want to avoid finding joy in these sorts of unhealthy ways. For this reason, trying to outpace or earn more than your neighbor could be detrimental both to your wallet and mental health.
Instead, you should create a financial plan for the next few months, 1-year, 5-years, 10-years, and beyond. This way you are only competing against yourself regardless of what people have around you. You will receive joy from attaining small goals which plug into a greater purpose.
Create very realistic and specific financial goals using the “SMART-goals” method. Make sure you set short-term goals that will build on each other. Psychologists find that in general humans prefer immediate gratification over future gains. If you achieve your short-term goals, you’ll achieve that instant gratification, while still building upon your long-term goals.