To parallel the thread by msmith537 about the mindset of poor people What are some of the mindsets of poor people that keeps them poor? - In My Humble Opinion - Straight Dope Message Board I am more curious about the mindset of middle class people and why they stay there. That group clearly has opportunities to move up financially and yet rarely does anyone. So why do middle class people (which I think includes much of this board) incur hidden costs or fail to take advantage of things that would get them more money and pull them into the wealthy.
Now I believe (with maybe the exception of Dangerosa) that I likely am one of the wealthiest people on this board based on postings I have read. I am NOT going to disclose my income or net worth but it is substantial. Let’s just say I have invested well and leave it at that! But I came from a very (VERY) poor background, my father was a railroad laborer, 11 kids in the family, etc. Yet I worked hard for my success and I have quite a few coworkers and friends who came from middle class backgrounds and are still middle class. It boggles my mind, they have so much more opportunity then I did, yet they never moved beyond that middle class status.
So what mindset limits these people:
Believing that money in the bank is better then paying off debt. I know so many people who have $1000 in a savings account yet have $1500 credit card debt. Why would you carry credit card debt when you have money to pay it off? I realize that there is a psychological process to this, but in my opinion you are fooling yourself. First off you should have 6-12 months of expenses in the bank anyways, but you should never carry credit card debt, period.
In my experience most credit card debt is ‘want’ not ‘need’. If you can’t afford it then you don’t purchase it. There are lots of things I want but very little I actually need. I would love a brand new big screen TV but I don’t need one right now. Most middle class individuals in debt don’t understand this.
*Not saving for their retirement via a ROTH or more importantly via their 401k especially if you get a match by your employer. That is free money you are walking away from! Plus the 401k is pre tax and lowers your tax burden–but I know so many people who just don’t understand this concept, or who fail to take advantage of it.
*Living beyond your means, or more importantly NOT living below your means. If you are living comfortably off $20k a year and you get a raise to $22k, most people up their spending. But in reality you should pay yourself first and put the additional $2k away and continue to live off the $20k–most people don’t do that.
Going to the casino or playing the Lottery…period–agree with msmith on this one.
Not reading/understanding the terms and fees of their credit/debit cards. Again agree with msmith on this one
Not saving at least some money in an interest bearing account. (Yes, I know it’s hard. But guess what? However poor you are, I bet there is someone else 10% poorer than you. Live like them and put the 10% difference in the bank.) Again copied from his OP and see point four above.
A general lack of understanding of the basic accounting principles of
Net Worth = Assets - Liabilities
Net Income = Revenue - Expenses
To this one I would add a general misunderstanding of the power of compound interest and how that is to your advantage. So few people understand this concept until it is almost too late or it is too late. Trust me–compound interest is your best friend in the financial world!
The misconception that having a flashy car or new house = rich. Rich people in reality rarely flaunt it. If you saw me you never would guess at my net worth. The cars I drive are six and sixteen years old and are paid off and were paid for in cash. My house is nice but modest. I dress well but not flashy, etc. The guy you see with the new BMW and the nice Armini suit–probably not rich and probably leveraged to his eyeballs. Looks good but he isn’t rich. I doubt his net worth is on the positive side at all. But so many middle class people try to emulate that lifestyle and thus find themselves deeper in debt.
What are some others?
One reason is to have an emergency fund of cash. If I lose my job and have to tread water for a while before unempoyment kicks in, I can’t pay my mortgage with a credit card.
I agree, as I stated you should have a 6-12 month cash stash. But you shouldn’t carry credit card debt–at all. Pay off that credit card debt first (or half pay and half save if you need to for your own peace of mind) but you need to get rid of that credit card debt first. Carrying credit card debt at 18% interest and having money sitting around at .05% in a bank doesn’t make any sense. Every month you are losing money. But if you paid if off with the money in your savings account and then built up your savings account you are on the postive side of the equation.
You will never get the 6-12 month cash stash until you pay that debt off, at best you are treading water in my opinion but more likely you are losing money every month.
You asked “why would you,” and I answered with a valid reason. Telling people you shouldn’t, you shouldn’t, you shouldn’t is all well and good until your power steering fails when you’re out of town, as mine did in January. Was I supposed to abandon the car in Spartanburg and walk home to Charlotte?
No. I had AAA take my car to a repair center and I rented a car so I could get home. That had to go on my credit card. I’m sorry if my planning was insufficient to satisfy your demands.
I’m not sure what you mean. I have zero debt – even my house mortgage is paid off. I have substantial savings, both in my retirement accounts and in my regular accounts. I invest regularly. I have a well-paying job. So in every financial aspect I am doing well.
Yet I am middle class, or at least I consider myself to be so.
You are welcome son. But it isn’t a valid reason. Well it is and might be for you, but you will never get out of middle class life doing that. The point of my thread was that everyone seemed to be having a great time picking on poor people in the other thread, yet we all do similar things. Middle class people have such greater opportunities then poor people do, and yet they are squandered by doing ill advised things such as keeping cash in the bank when you have credit card debt.
You don’t have to please me–hell I don’t care if you are poor, or rich or middle class.
I suppose it depends on your definition of middle class then. I doubt most people would consider someone with no mortgage, substantial savings and doing well as being middle class. Not sure of your age but if you have substantial savings and continue to increase that savings I think you could become very wealthy! Good luck!
I graduated with a liberal arts degree and did not go to law school or grad school like I had planned. The idea of taking on a mountain of debt was too much at that time and I told myself I’d work a year or so and then go back to school. I never did.
I took too many dead end call center type jobs in my 20s. Burned out and moved from company to company every couple of years. I think I cared more about matching my work schedule to my nightlife schedule than a career path.
Even though I began to get more serious about my career in my 30s, I just don’t want to work 60 plus hours per week. I also don’t want to have to do the sort of corporate schmoozing that I’d have to do in an upper management position.
I think you’re confused about what “middle class” means in America. Especially “upper middle class”. My dad got more than a million bucks when he retired, but they’re still upper middle class. Rich is a whole other ballgame, as most Americans see it.
I also come from a poor family and have moved to middle class with extremely little help from them.
I have very little credit card debt, actually none since I pay off my two cards every month. I still get everything I want. But carrying a balance or not isn’t going to make me wealthy.
I do save for retirement, a savings plan and a 403 (they don’t offer a 401) with company matches. This still isn’t making me wealthy.
I do live within my means, well within them. I put thousands into savings and long term savings and investments every year.
I go to a casino like once every two years and gamble maybe $100-$200 and play the lotto with about the same frequency for like $5. This isn’t affecting my standard of living.
I know the terms of my cards quite well. Since my partner has worked for banks for the last ten years, anything I’m not clear on…he is.
I do this as well. I found the best interest account I could and started with $10k in it.
We are a one, fairly cheap car, household and have a modest condo. I could have the flashy car and the Armani with very little or no debt, but choose not to.
My point is, none of these things are making me wealthy. Unless I get an advanced degree and a far higher paying job or make a ton in the stock market etc, I never will be. What is the criteria you’re using for middle class v wealthy?
Well, there are some folks for whom enough is enough, and some for whom enough is not enough.
Personally, I have enough money to provide a good lifestyle, save for contingincies/retirement/kid’s education, and keep myself and my family healthy. I have no desire to make my lifestyle more stressful and busy, nor am I willing to exploit others to get ahead. I’m not Type A or a workaholic, nor are either of those traits admirable, IMHO. I’ll still end up being “wealthy” by world standards, anyway, without resorting to extraction/exploitation/tax dodging, etc.
I refuse to buy into the notion that not striving to become “rich” as quickly as possible is some sort of failing.
Good point as I didn’t define what I meant by weathly or middle class. I guess it is difficult since no one in general believes they are middle class in my experience. For purposes of this thread I would say income by itself is not useful as making $100k a year and spending $99k isn’t getting you anywhere. Maybe we can use net worth as the definition?
I would say again for the this thread a net worth of over $1m would put you in the top 5% of the country. Or alternatively you can use this calculator and let’s put in age 50 and $100k income (which hopefully we can all agree puts you clearly in middle class range). http://cgi.money.cnn.com/tools/networth_ageincome/index.html
So doing that the average 50 year old making $100k a year has a net worth of $98,350 for his age and a net worth of 301,475 for his income. Thus if you have a $1m by age 50, can we agree that is a wealthy person? Or do you want to make it $2m?
This is what I was going to say - if you make a decent living, have nice things you enjoy and don’t worry about money, the motivation for making MORE money just isn’t there for lots of people (including me). I would rather relax about the whole thing rather than fretting that I don’t own a Lear Jet.
I would also point out that I’m not sure that anyone who posts on this board is actually wealthy - upper middle class, sure, but the ‘tips’ you suggested in your OP are not what wealthy people do - they’re what middle class people do to become MORE middle class.
Wealthy people hire people to manage such minutia.
Oh I agree 100% with that! But I guess what got my goat was that there seems to be this attitude in that other thread that poor people have these attitudes about money that keep them where they are, yet we all fail to recognize that everyone has similar attitudes that keep them where they are. For the record I am not a workaholic or a Type A personality either. I was just lucky and invested well, but the items I listed also helped. You can’t make money unless you have it, and you can’t have it if you don’t do those things. So I had the money when the opportunities came along.
Even right now, I just purchased a new home that is easiest the nicest home I have ever had. But I am buying it at the right time because I have money. This home was $200k more 2 years ago.
Now I will freely admit I got wealthy by making some lucky decisions early on in my career and marrying the right woman! My wife and I have very similar approaches to money and that helps.
I do apologize if anyone feels I am saying that being middle class isn’t good enough as that wasn’t the intent of the thread. But if we are going to note the reasons poor people are poor, we also need to acknowledge that middle class stays where they are for similar reasons.
A 50 year old person working at a job making $100,000 K a year is not wealthy even if they have a net worth of $2 million. They are upper middle class. (Or middle class, depending on there peer group).
Probably $2M; if net worth includes the equity in your home + investments + income, it doesn’t seem terribly wealthy for a professional 50 year old with good money habits to be worth a million, even if it does sound pretty good on paper.
“The average wealthy American (based on the numbers I crunched) has $1,400,000 in assets, and $275,000 in debts, for a net worth of over $1.1 million. Of those assets, they’re fairly equally split between “financial” assets (stocks, bonds, mutual funds and cash), and “non-financial” assets (real estate, personal business equity, collectibles”
Gotcha. I agree with that. I don’t think that being responsible, professional, and generally endeavoring to improve your financial condition make you some bloodthirsty anarcho-capitalist, either. And it’s true that there are people who have all those things going for them except for the fiscal acumen to parlay their good luck into good fortune, so to speak, which resembles the habits that keep the poor down.