To my mind, the reason I object to using the term 'rich" to describe what you are describing is that it is inaccurate. There are indeed different mind-sets, but truly “rich” people do not become ‘rich’ by being super-conservative scrimpers and savers. On the contrary, they become “rich” by taking big chances with their careers, time, and money - by being, in short, entreprenureal, and clever and lucky with it. On a $50,000 “pie” you can never be “rich”, even if you save every penny - you have to increase the pie, or preferably end up owning a pie-making factory, not simply save the crumbs, if you want to be 'rich".
The mind-set you are describing leads to finacial security for the average person who hasn’t the inclination, ability or luck to be “rich”. That’s a worthy goal in and of itself, and one I fully agree with, but once again I advise balance. My own technique for that is I find a matter of practice - I set up an automatic deduction from my bank account that withdraws a certain amount (in fact, 40%) of my net income into savings off the top; that’s on top of a mortgage that also withdraws another 25%, a sort of forced savings. But my income is quite high, so the remander is easily enough to live on in some comfort.
Efforts to save should be balanced with efforts to increase - if an expense is necesary for increase for myself or my family (for example, focused education), I would not begrudge that, even if it throws off my savings schedule.
The poor mindset is that of live for today and give no thought to tomorrow, it is true.
Or they inherit wealth. But when most people think “rich” they do not think “millionaire next door” living in a modest house, driving a used car. My parents, who have recently retired and therefore are at their peak wealth, are currently “rich on paper” in that they have over a million in assets. But - if they live frugally and have no major health issues - they will live a middle class lifestyle in keeping with the lifestyle they lived pre-retirement and spend it down - I don’t think I’ll inherit much. They aren’t “rich” - they won’t be flying down to Doral to play golf for the weekend this winter. My mother will not be hanging out at the spa, or buying an Louis Vitton purse. My father hasn’t bought a retirement convertible. If they do those things, they’ll run out of money well before they should. They did save enough that they can do a little traveling, eat out, and buy their grandkids gifts. There is a difference between financially secure and rich.
And both the financially secure and the financially insecure can be middle class.
Sorry for being so crass, but that is entirely bullshit. Case in point: lottery winners.
You used the expression, “they become rich…” which is a completely different issue with that we’re talking about. The point of this thread is whether or not they will go broke, stay the same, or get richer.
So I mentioned lottery winners as the classic case of the mindset that makes people poor. How many of them are able to take that $10million windfall and turn it into more wealth? Compared to how many of them piss it all away in a matter of months.
Answer this question out loud to yourself: If you were given $1million today, what would you do with it? Typical answers:
1.) I’d buy a totally bitchen [house/boat/car/tv/tits/wife/sprinkler]
2.) I’d tell the passengers to go fuck themselves, grab a couple of cold ones, pull the emergency slide, and **retire
**3.) I’d use it to **build **my empire.
See if you can match those to the following mindsets:
[A] Poor
** Middle class
[C] Rich
Answer key: 1= A, 2=B, 3=C
One of the stumbling blocks we keep hitting has to do with the definitions of middleclass, rich, and getting richer.
People have this ridiculous notion of what it means to be rich: and it has lead to poor-millionaires. There are people that should be rich, they are CEOs and execs making 7 figure salaries. But they are surrounded by people making 7 and 8 figure salaries. So all of their money goes into keeping up with THOSE Jones. Consider that we just had a discussion about a thousand dollars for a sprinkler system. That mentality transcends all income brackets such that people making billions feel like they have to spend 10% of their income on their lawns.
If I told you that I have enough money that I don’t need to work, wouldn’t you consider that rich? Or do you really need to qualify that with “well, what size is your boat? 54ft? Phff, you ain’t rich.” Rich isn’t about the things you own or what you can afford.
The odd thing is, that we have relegated that thinking to retirement, and relegated retirement to 65.
Now, let’s look at what you then said:
Sounds good, what did you say just before that:
What you are saying, and covering it with the word balance, is that TODAY is more important to you than tomorrow. When someone is poor we call that irresponsible, when someone is middle class we call that balance, and when someone is rich we call that opulence.
Why does it matter where he plays golf? Why does it matter what kind of purse she owns?
Yes, they are living the lifestyle or pre-retirement, which one key and major difference:
The no longer have to work.
How is that not rich?
As I just said in my previous heated and lengthy post, if you met a couple that was 35 and living like that, would you still consider them middle-class? Or would you say, “holy shit, that guy is loaded. Neither of them have to work, and he gets to play golf any time he wants.”
I don’t know who started the rumor that I want to give up my career for parenthood, but the reality is I very much want to do both. I think there was a misunderstanding in previous threads because I have considered SAH parenting for the first 1-2 years. Anyway, there won’t be a child in the picture for quite some time.
I had to google dilettante. This is what I found
Really? I would call that interpretation of my motivations and/or my program wildly inaccurate. I’ve been working as a volunteer for years in the field of my interest and doing a shit-ton of independent research. I flew all the way to Mexico and lived on a farm teaching 8 English classes a day in order to learn more about the emigrant culture. I worked at a nonprofit for 2 years in a field that didn’t interest me simply to improve my Spanish and administrative experience enough to be effective in this program. I have about 700 hours of service experience for which I was not paid a dime, all of which I did in order to become a better social worker. That’s not even counting how much effort I’ve put into the last year. I don’t think you can support an argument that I don’t care about social work or that I’m not committed to my program. It is way more meaningful to me than just a career. I value the knowledge I have gained in and of itself, it has improved my life already and I’m not even getting paid yet.
I may not be able to defend it financially, but as a personal choice it seems like one of the best I’ve made. That may also be part of the mindset of the middle class, and if so then I’ll happily acknowledge it’s a strike against me.
However, I feel the need to add, there are some well-paying jobs in social work, but they only attract a certain kind of social worker. I chose a macro concentration, we’re much more rare than clinical social workers (there are about 20 of us in my graduating class of 170), and we usually end up in leadership positions doing things that many social workers don’t want to do, like research, policy development, grant-writing, administration, etc. I consider all facets of social work important, but my particular career interest is functionally different than what is typically thought of as ‘‘social work.’’
I will be interning for the behavioral mental health department of a Latino-focused nonprofit this year, doing all of the above and more. You can make decent money in mental health administration/policy/R&D positions. The beautiful thing about the macro MSW degree is that it is super flexible which is perfect for someone like me who has so many different interests. I can do anything from policy in Washington to community organizing in Chicago.
I’m going to love my work! What is that worth, monetarily? Is it worth $100k? Obviously I thought so because that’s the choice I made.
I should have been more clear upthread when I discussed my concern about the debt. I can’t go back and go to a different school or a different program, and I can’t take back the money I already spent last year that didn’t have to be spent. My education did not have to cost $100k, and I’m doing my damnedest this year to mitigate the damage. I readily acknowledge I made financial mistakes, but I can’t go back in time, and I refuse to believe that I can never achieve my financial goals because I took out too much debt for school. I am 27 years old, there is a lot of time to get things back on track.
People keep telling me the best thing to do is pay only the minimum on the debt when really I just want to pay it all off ASAP. That’s my conflict right now - what to do with the debt? Am I seriously supposed to live with it for 10 or 20 years, only paying the minimum? My Mom paid hers off in five. Even if I had to take on extra work for a few years, it seems like it would be worth it not having that debt hanging over my head forever.
We aren’t dependent on them by any means, but the wealthy in-laws have already played a pretty significant role in helping us along. We don’t plan for or expect financial assistance, but when we receive monetary gifts we invest them. This is one of the reasons we have $40k in retirement and $20k in savings. Even if we never receive another dime from them, they’ve helped us along so much.
And you are correct, we’re fortunate my husband’s passion for psychology pays pretty well. I could support myself if I absolutely had to, but it’s going to be easier with his income, when it comes.
The debt we’ll be dealing with is no joke, but neither me nor my husband is afraid of some financial hardship in the beginning. That comes with the territory and is a consequence of us both pursuing our dreams rather than doing what is most lucrative. We can live on a lot less than we’ve been living on, and as I mentioned upthread, we’re going to have to from now on, in order to get ahead. And I do believe we will eventually get ahead.
I do appreciate your candor in this thread. Hearing from people who are financially well off has been quite the learning experience.
My personal classification of rich is what you stated emacknight but I think we are in the minority on this one. That is why I liked dangerosa’s designations above as they take the amount of money out of the equation.
However as this thread has continued I see many (if not most) of the people don’t see it that way. I could retire tomorrow and live comfortably the rest of my life if I chose to do that. To me I consider that rich, wealthy, whatever you want to call it–maybe financially independent is a better term? I am choosing to NOT do that right now but that is because I enjoy my occupation and to be 100% honest my wife needs to put in four more years for her pension (thus the 55 age I listed). The pension isn’t huge but it would be foolish to walk away from it when we are this close, and frankly I don’t tend to make foolish financial decisions, or I wouldn’t be where I am.
I do know many people like you described. Many people at my level here, successful professionals all in theory making excellent annual salaries, all have to work and will work until they die or retire at age 65. They have to as they are mortgaged to the hilt. One guy who sits next to me stopped work on his house as he didn’t have the cash to do it, but talking to him he has a boat, a vacation cabin (which he told me in hindsight he chose the high end finishes poorly as he anticipated the market would support them, so now he has a overpriced vacation cabin that he can’t unload), a timeshare, several new cars, etc. You aren’t going to be financially indpendent that way!
[sarcasm]
No man, that guy is rich. Just look at all the *stuff *he has, and it all sound like great stuff. I bet he even has a membership to a country club, and probably gets his wife a new designer purse every month. Why should he have to deny himself or his family pleasure?[/sarcasm]
I surprised people keep telling you this. My financial advisor told me to pay off the student loan (all Stafford) as aggressively as I can without sacrificing long term savings. Maybe all the people who tell you that think that stafford loans are 3 or 4% like they once were. At the current interest rate of 6.8% you are making a tidy return when you avoid paying 20 years worth of interest.
I would not pay just the minimum on ANY debt unless someone gave me a very persuasive reason to do so. If someone tried to pat me on the head and tell me not to worry my little head about it, their ass would be fired. That’s why I never do any type of financial business with family.
See, this was my thinking too. My interest rates are 7% and 9% and we have $20k in savings. My instinct would be to throw every red cent we can find, starting with that $20k, toward the debt. Like try to live off one income and pay down the debt with the other income. Like I want to be super aggressive with this debt, and people keep telling me it’s better to invest.
The only thing that does give me pause on using the $20k for the loans is my husband is going to need a new car at some point - the current one is 14 years old and could go literally any second. My car is brand new and paid in full and will last quite a while. I could see a legitimate argument that we should use the $20k for a car instead of paying off the debt, because interest rates on autos can be a bit ridiculous. Aren’t they generally higher than the standard loan rate?
Would it make sense to just take the $20k and use it toward school expenses this year, thus reducing overall cost of loan? We can still do that.
By long term savings do you specifically mean retirement? Because I agree that retirement, especially at our age, has to be the top priority. But would it make sense to do the max Roth IRA contributions and use the rest to pay down loans?
I’m sorry, but the notion that someone earning $50,000 can ever be what any reasonable person considers “rich” simply by scrimping and saving is “bullshit”.
You are doing a bait-and-switch: using the word “rich”, which you must know very well connotes actually being wealthy, to mean “financially secure”, to sell your theory as being more attractive than it is.
No, it is you who added the notion that they could get “rich”, and me taking you to task for it. It does not help your case to continually, deliberately misstate what’s under discussion.
Case in point: I mention that taking entrepreneurial chances with their money or careers is what makes rich people (who were not born that way) rich; you respond with the counter-example of: lottery winners.
In your mind (or indeed in anyone’s mind) is a “lottery winner” an example of someone exhibiting entreprenureal smarts?
The problem is that getting “rich”, as opposed to “financially secure”, is all about empire-building; you don’t build any empires by saving your pennies.
Again, someone is misusing the terms - and it’s you. Your average retiree with an adequate pension or savings is not “rich”, no matter how often you keep saying that they are. They are financially secure, even financially independant. But they are still solidly middle-class. You cannot invent your own, idiosyncratic meaning to a common word, insist that everyone else use it that way, and cry “bullshit” when they won’t.
Now, this is not to deny that people with massive incomes can be financially insecure.
No, what I’m saying is that money spent in certain ways is an investment which is the exact opposite of that!
Shit, if I took your advice, rather than blowing a fuckton of money on law school, I’d have put it all into buying safe securities - and still be saving out of my $30,000 a year salary. Are you really contending I’d be better off financially!?
What you are missing in your myopia about savings is that becomming more wealthy has two aspects:
(1) saving money (that is, keeping part of the pie for later); and
(2) increasing earning potential (that is, growing the pie).
Yes, yes, a thousand times yes, a person with a $300,000 salary can blow it all and more, if they ignore point (1).
What you are doing is just as bad - you are dissing the notion of focused education, or other means of increasing earning potential. You are ignoring point (2).
Point being that, all things being equal, the person with a $300,000 salary is in a better position to save more money and be more financially secure than the person with the $30,000 salary - and to get the $300,000 salary requires investment. You need (for example) to take years off work and spend a pile of cash to go to law school.
To earn the really big bucks - to actually have a shot at being “rich”, not just in the bullshit way you evidently mean the word, but in the actual real-world meaning of “rich” - requires something else again: serious entreprenureal smarts combined with a good shot of luck, and usually, lots and lots of hard work.
I find that I’m still really confused about the meaning of the word “rich” in the context of this thread.
Does it mean you have the mindset where you spend less than you earn, you save a substantial amount for retirement, and you hope and expect to be able to retire one day? If so, then I’m definitely rich.
Does it mean that you’re debt free and already have a substantial nest egg saved up, based perhaps on the famous formula from the “Millionaire Next Door” book? If so, then I think I’m rich, but borderline.
Does it mean you have enough saved up to stop working right now? If so, I’m definitely not rich.
And if it means you have enough saved up to buy whatever you want, I’m certainly not rich.
To my mind “rich” has a number of valid definitions, when applied as a descriptor to a person.
Most usually, it is used as an absolute measure of wealth, implying that person X has, absolutely, more wealth than the vast majority.
Often, it is a class descriptor, describing the class above upper middle class.
In no case, at least until this thread, and certainly not in common usage, is it used to mean ‘able to retire without needing to work as a Kmart bagger or eat dog food’.
Long term savings could include Retirement, “cushion” for emergencies, and particular long term savings goals you might have (downpayment on a house, moving expenses if you plan to move, or whatever).
BTW, you don’t need to spend $20K on a car. You can get a fine used car for $10k. Hell, I spent $5500 on a 4-year old Hyundai Accent, and it still had 8 months on the factory warranty. 6 years later that little car is still kicking ass & taking names.
Two things I personally would not be comfortable with:
1)spending my savings down to $0, even for a “good cause” like debt (because a minor emergency could put you worse off than before)
2)Paying the minimum on any debt, ever, unless it is the only way to avoid defaulting on the debt.
If you can get 7-10% “return” on your debt payments, it is VERY unlikely that you would do better than that in investments, and certainly not in the short term.
The best thing would be to speak to a qualified, non-family financial advisor, the kind that does not work on commission. It actually doesn’t cost much.
Perfect example of how things become muddled in a specific situation, and how there is not a one size fits all approach. If you put all $20k towards your debt, you’ll have nothing left over for when the new car is needed, or whatever might crop up that requires emergency finances.
I’d bet that the people telling you to pay the minimum on student loans are thinking about when the rates were so low. Thats exactly what I did - when the rates were low earlier this decade, I paid the minimum, and when I had a wad of cash, I paid off my car. A car is a depreciating item, so I didn’t want to be paying a monthly payment in addition to repair costs. So I ended up putting the student loan payoff in a lower priority. By the time the rates rose up above 5% or so, there was relatively little in the way of principal left, and we had just bought a house - so the money went to other things (like the $1700 to fix the water main that busted in the first 9 months of home ownership).
If rates are 7-9% nowadays, that obviously changes things. If we are headed to a double dip recession, putting that money all into investments may not make a lot of sense right now, because you might end up losing money on them in the short term. But that contrasts with the idea of buying while low - so find a balance that works for you.
Invest some, use some to pay off debts, keep some around for emergencies. Diversification!
This is an odd thread, where the tone seems to be “It’s their own stupid, lazy fault if they aren’t financially independent” and the subject is significantly different to the thread title (redefinitions of “rich” aside, the thread title is about the middle class. Middle class is not defined as can/cannot retire.)
But sure there are lots of reasons beyond stupid / lazy. Plenty of people invested in property pre-crunch, and that was not obviously a daft thing to do.
Then, there are those who are single / divorced / whatever.
Personally, I was made redundant last year and have spent my savings on training into another career. Hopefully it will pay off and I’ll be “rich” within 30 years.
However, for those in a similar position to me but 20 years older…their choices are severely constrained.
It is an odd term though isn’t it? If I am able to retire at age 50 (which I could) and live a more then comfortable life is that rich? In my own internal view it seems it would be, especially coming from the poor childhood I had. The idea that I could be comfortable (and I mean more then just meeting my bills, etc–but actually have money to travel, and enjoy my life) isn’t that rich? If $1m isn’t it, then is $2m or $3m or $4m? What is that number? For me without question I woudl agree that someone who can just jet off to the Bahamas tomorrow for 2 weeks is rich, but when I started the thread that wasn’t what I had in mind.
For me a guy who can leave the work force at age 50, living the type of life he wants (which is all a personal thing for each of us), his time is his own, he can golf everyday, fish, read, or do whatever he wants–to me that guy is rich. He doesn’t have to work unless he chooses to. How is he different then the Bahama jet setter other then the gilding on the lily?
It is why I liked Dangerosa’s definitions so well–it takes the actual numbers out of it as I don’t think they are relative to be honest. I think **emacknight **is a bit adamant on the issue but I do understand where he/she is coming from, but I do think our usage of the term is probably not the common usage.
Like with our current problem of defining rich, it seems that you are confusing the terms *debt *and pay the minimum.
In the grand scheme of things, consider two kinds of debt, a mortgage and a credit card.
I currently have a mortgage, and I pay the minimum. Am I crazy for doing that? Absolutely not, because the mortgage payments are amortized–designed to be paid off. Paying the minimum each month will bring my mortgage down to zero in 30 years.
Credit card debt, on the other hand, is not amortized. Paying the minimum each month is intentionally designed to make sure your balance NEVER goes to zero. I also had a line of credit I used to pay for school, and the minimum due each month was simply the interest.
Student loans generally have a payment schedule like a mortgage designed to be paid down within a certain period of time. Now, assuming your loan is amortized, we have two reasons to not pay more than the minimum:
[1] the cost of the interest was factored in to the cost of the loan. Like with my mortgage, I worked backwards from the monthly payment I wanted, which included both interest and principle.
[2] I believe the term is rolling credit. When you pay off a credit card or line of credit, you then have that credit available again. When you pay into a mortgage or student loan, the money is gone.
Let’s say you had $20k in credit card debt, and $20k in student loans. The ideal path is to set up a payment schedule that reduces the higher interest first, and is based on your financial situation. This lets you have your savings to pay for things you need, and avoid taking on more debt.
If you put your $20k of savings into the credit card, and then needed car repairs, you can use the credit card (not that you should). If you put the $20k in the loan, it’s gone, and so is the savings. Now when you need car repairs, you’re credit card debt has to grow.
Part of paying down debt is making sure it doesn’t grow. Hopefully that made sense.
I once asked my Father if paying my mortgage off early was wise. He said it was not. The reasoning behind that was: The money you throw at the mortgage will only be realized after you sell your last house. This assumes you go from house to bigger house and always have a mortgage…so long as that’s the case, the money you throw at the mortgage is irretrievably tied up in a way you can’t use. (Granted this conversation predated the Mortgage bubble and before that, the lovely advent of jumbo mortgages, equity loans, et. al.)
Since we seem to be moving from opinions to debates, consider this: The Rich (5%) Households with net worth of $1 million or more; largely in the form of home equity. Generally have college degrees.
I think what you’re doing is confusing rich with **The super-rich (0.9%):**Multi-millionaires whose incomes commonly exceed $350,000; includes celebrities and powerful executives/politicians. Ivy League education common.
Again I need to assert that being rich does not and will not guarantee financial security. Ask Nickolas Cage or 65 of his friends if you disagree. Even Donald Trump has been pushed to the brink of bankruptcy multiple times.
It seems in this back and forth we’ve established another middle class mindset: plan your savings so that you’re rich at 65, then stop. When you look back through various posts, you’ll notice that what’s left over becomes the “balance.” Middle class individuals tend to put enough away for a “comfortable” retirement, and then use the rest to live their life.
In general I suppose this is true if you look at it like that. I would be interested to get other peoples take on this as well though–as it is an interesting question. I would first fund my retirement money first and then if you have additional funds do your mortgage. But given that I admit I pay my mortgage bi monthly to get the additional payment in per year, but then again I also fully fund my 401k and ROTH each year too.
I know many people use their home as part of their net worth, and in theory you do, but there are two schools of thought on it as I recall. One-you include it as it is an asset. Two–It is an asset but you don’t include it in your retirement because you have to live somewhere, and unless you plan on moving or selling you have an asset that doesn’t allow you to access it. I think most people plan on downsizing so to me it would be included, yet I don’t typically include mine when I do my retirement forecasting.
edited to add–I think for many if not most people it is the peace of mind knowing that they have a home that can’t be taken away. Again money is a consideration but there are other emotional tangents to the equation that also need to be considered. But they need to be balanced, you can’t let an emotional response decide it, and in my opinion you can’t let an purely fiscal one decide it either.
