All that being said, it is true that many people, regardless of monetary status (but perhaps especially middle class), live beyond their means. I think this was really the point of the OP, yes?
A Chinese guy worked in a bakery and slept on a mat in the upstairs storeroom. He saved his money, had no car, paid no bills. When he got married, his wife wanted to move. He would not. When the owner of the bakery retired, he had saved enough to buy it. Still he would not move or buy a car. In the end, he had three bakeries and retired a millionaire.
That seems far fetched, but I had a teacher that lived at the school (faculty housing was a leftover from it having been a military school, but he was the only one who did it). He and his wife rode their bikes to get groceries, etc. He lives on the beach in Hawaii now. Paid in cash, never had a mortgage or paid a dime of interest in his life.
But, you can get hit by a bus. The sacrifice today for the payoff tomorrow does not always work. The sensible thing is to strike a balance. And avoid credit cards.
Bingo! I think most people don’t understand money and it isn’t endemic to the poor. Most people, poor, lower or middle class don’t understand the nuances of the tools that financial institutions use on them. Interest free for 6 months? Sounds great until you understand if you don’t pay if off before the 6 months is up you have all that interest due then. Skip a payment this month, because Christmas is coming and you have paid your minimum all year–gee thanks Mr. Visa, now I am right back to where I started at the first of the year. That sort of thing, then couple that with the keeping up with the jones mentality that permeates our culture then it is easy to draw the conclusion that people in general know very little (or care) about money, and it isn’t limited to poor people. I suppose that was my main point, or maybe the lack of caffiene first thing in the morning.
No I am not trying to garner sympathy for the poor. But I was pointing out that many of the same issues that keep poor people poor, keep middle class people where they are as well. I think where I erred was the terms of wealth—I was not shooting for the stars with the Hiltons there but it got the thread off tangent. And as I said, lack of caffiene. Ah well, that is one reason I rarely start threads I suppose!
Okay but Msmith573 step back from the ‘rich’ and use being a millionaire as the basis? I guess my point is that average middle class people can easily become millionaires. I do think most peoples idea of rich or wealthy is skewed by the Hiltons, etc. I am not talking ‘that rich’ but ‘reasonably rich’ which I think most people here would agree that $3.7M average is pretty good wouldn’t you?
Excerpts from The Millionaire Next Door
By Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D.
“Based upon the authors‟ surveys, the following represents the average millionaire in America –
While only 1 of 5 Americans are self-employed, 2 of every 3 millionaires are self-employed. Many of their businesses would be classified as dull-normal – contractors, farmers, mobile home park owners… Average household net worth of $3.7 million. 97% are home owners with a home valued at an average of $320,000. Half have lived in the same house for more than 20 years. 80% are first generation wealthy and don‟t feel slighted by not receiving an inheritance. We live well below our means. Only a minority own a new vehicle or lease a vehicle. Most have one spouse who is a meticulous planner and budgeter who is more conservative with money. Most have enough wealth to not work for ten or more years and they save at least 15% of our earned income. They are worth 6.5 times more than their neighbors who outnumber us 3 to 1. Only 20% are not college graduates and many have advanced degrees. Only 17% attended any private school, but 55% percent send their children to one. They spend heavily on the education of their descendants. 2 of 3 work 45-55 hours per week. They invest at least 15% of their income each year – most 20%. 79% have at least one brokerage account, but they make their own investment decisions. 20% of their wealth is in publicly traded stocks or mutual funds and they hold – rarely selling. 21% of their wealth is in their privately held business. They are tightwads. They completed a long questionnaire for $1 and then spent hours getting interviewed in exchange for $100 to $250.
The typical wealthy individual is a businessperson who has lived in the same small town for most their life owning a factory, store or service company. They are married once and stay married living in neighborhoods which are not equally affluent. They have made their money on their own – are compulsive savers and investors. There are 7 common denominators of these persons:
“They live well below their means.
They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
They believe that financial independence is more important than displaying high social status.
Their parents did not provide economic outpatient care.
Their adult children are economically self-sufficient.
They are proficient in targeting market opportunities.
When my kids were first born we went to a financial planner and they mapped out what we needed to save every year to get all three through college. I thought it was a ridiculous number at the time.
Guess what? THEY WERE RIGHT! Do not wait to start this process.
In a general sense probably good advice for everyone above a certain threshold of income. Though living well below their means, as opposed to somewhat or a little below their means strikes me as possibly going overboard. Makes sense if your income is high enough, but an argument can be made that pleasures too long deferred may be functionally pleasures forever deferred or at least no longer as enjoyable in your twilight years. Some balance should be struck - everyone deserves to indulge occasionally.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
Yeah, I just don’t see the appeal :). Millionaire status isn’t worth 60 hour work weeks and constantly seeking to make more. To me, anyway.
3. They believe that financial independence is more important than displaying high social status.
Can’t argue with that, at least in western society. Status for status’ sake is really only worth pursuing in kleptocracies, where it really may purchase security.
4. Their parents did not provide economic outpatient care.
Hrrmmm? Does that mean teaching your kids to manage their money and not babying them? If so, yes, always a good idea.
5. Their adult children are economically self-sufficient.
Neither here nor there in this discussion, more descriptive of the state of being rather than proscriptive.
6. They are proficient in targeting market opportunities.
Again, zero appeal. I’m not a business man and you couldn’t convince me to be actively on the make for a million dollar annual salary. I’d be miserable.
7. They chose the right occupation.
Again, a problem. My own father wanted me to study philosophy in college, so you can see how much getting into a lucrative career track was encouraged in my family :p. But really, some folks just want to be historians or don’t have the wherewithal ( talent, discipline, what have you ) to become a highly-salaried professional.
So of the above 7 commonalities to the moderately wealthy, one is null in regards to getting there. I agree broadly with another 2.5-3. But 3 of them would actively stick in my craw for one reason or another.
Which no doubt explains my more or less comfortably middle-class existence.
That’s what I was going to say. For many people, it would take a lot of sacrifice, hard work, and a bit of luck to break out of middle class mediocrity. Some people simply don’t want to make those sacrifices because they already have a pretty good life as a middle class person.
I think it’s that middle class people are happy where they are.
Personally, I’ve been divorced twice and took an economic hit both times, or I’d be better off financially. Let’s see how well I do on the 7 things:
1. They live well below their means.
Easy for me if it’s just myself I’m supporting, but I’m also helping support my sister, my niece and three of my four kids.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
I strive to do this.
3. They believe that financial independence is more important than displaying high social status.
Agreed.
**4. Their parents did not provide economic outpatient care.**Correct.
5. Their adult children are economically self-sufficient.
Some are and some aren’t, but it isn’t as easy in today’s economy for young people to be self-sufficient. I guess I messed up by marrying a man with kids and for taking my niece in last year.
6. They are proficient in targeting market opportunities.
I fail this as I know nothing of the market.
**7. They chose the right occupation. **
That kind of irks me because I think people are happier doing something they like rather than something which will line their pockets. I don’t think I’m going to get rich with engineering anyway, but I don’t really care. I personally am happy when I can keep the bills and my taxes paid up.
Well I think they meant they chose the ‘right’ occupation for them. If you saw the occupations are pretty diverse. I am not in an Occupation that is traditionally well off (people may think Architects are rich but the vast majority are not), but I LOVE what I do for a living. And NW I think you are rich (for a motor oil anyways!)–everything I have seen you post here and on the Giraffe board you seem overall pretty happy with your choices (albiet sometimes frustrated but we all get that way).
I personally don’t believe money buys you happiness. But it does make life easier. For me I want to retire from the corporate world and do simpler fun projects that make an impact to everyday people. So when I retire here in four years it is just from corporate life. I enjoy the scale of the projects but designing million dollar condos isn’t why I went into Architecture. Helping a young family make their life better via assisting them designing a better kitchen or bath or add an additional bedroom would be more up my alley. So I have four more years of this and then I can focus on doing more the type of work I actually enjoy–and traveling!
So you consider yourself rich then? I’m not being snarky, just trying to establish where you draw the line between “middle class” and successfully wealthy to the standard you set out in your OP.
At what point do you consider a person’s status to be that of middle class and at what point to they get to “graduate” to being considered wealthy?
How old were you when you started out, and how long did it take you to get from poor to wealthy?
Did you go to college?
What type of lifestyle did you have while you were working your way up to being wealthy?
How many jobs did you hold (meaning did you work 2 jobs at a time, or 3 and so on) in order to work your way up?
Where did/do you live while working your way up?
Do you still live in the same area you did when you were poor?
If not, how many years did it take for you to move to a wealthy area?
Was there adequate, reliable, and timely public transportation?
Was weather and second or third jobs a factor in reliable public transportation to and from work?
(again, not snarky, just trying to clarify). So, in your opinion, if a person has any credit debt at all, they should not have any money in the bank, they should put it all on the credit balance?
At what stage in life did you get to the point where you had 6-12 months of expenses ahead, how much at a time did you put away to get there?
No one, whether wealthy beyond all imagining or a struggling lower middle class family needs a big screen TV. This has less to do with financial savvy and far more to do with human psychology. Sometimes, “ability to afford it or not” things that appear to be entirely luxury based, can be a reasonable purchase.
At what age did you start, what percentage of your wages did you contribute?
IMHO, this goes back to the point above. It doesn’t necessarily mean they lack financial savvy. It can very well mean that they prefer to enjoy the lifestyle they have to the best of their abilities rather than struggle through decades of a dry existence scant on creature comforts JUST so they can have the dubious pleasure of attaining (ta DAaaaaaAh, angel music) Wealth.
In other words, they’re comfy.
I didn’t read ms’s thread, but I don’t do either. To me, the casino is boring. Oh yay, I’m putting quarters into this machine and it’s giving me NOTHING in return…Woo HOOO. I don’t get it.
Lottery, same thing. I suck at algebra, but I get “checkbook math” pretty damned well. The odds aren’t worth it. Plus it’s boring.
This is after a person has already credit card balance free correct?
You seem (from your OP) to be looking at it from a standpoint of both poor and middle class as being something people get “stuck in”. But they’re not.
So the answer to your question is…Probably because middle class or upper middle class is a worthy destination in and of itself, in most people’s eyes. Most people don’t consider being middle class as “keeping themselves in the spot they’re in”. They don’t consider it a “spot” they consider it as comfortable and as successful insofar as that’s where they wanted to get.
And as (I think it was Manda Jo) another poster pointed out in a similar thread sometime back (paraphrased) "there are two types of poor, situational poor, where a person had a run of bad luck, and chronically poor where the person truly has “kept themselves in that spot by their own ignorance and actions”.
The complaints the “elitists” in the other thread were making about poor people were likely more about the chronically poor than the situationally poor.
Jeez, I had no idea I was a failure and “stuck where I am” because I have a mortgage and car payments, and don’t have a year’s worth of expenses socked away in the bank.
For me, I think it’s mostly the lack of interest-bearing investments. I don’t come from a family that has investments, knows about investing or cares about investing. None of my friends invest. I do not want to take risks with my money or put it where I don’t have access to it.
The only debt I have is a mortgage. Spare money goes into a liquid savings account with a shocking 1.5% interest rate. I save up until I can pay cash for that next big thing (a lawn mower, a shed, home improvements, replacements for worn-out items) and I pay for those things and start again.
I work for my money, and I could make more if I wanted to work more. But my money definitely doesn’t work for me.
Well, as I said, you’re wrong unless poor people actually like being poor. There’s nothing “keeping” most middle class people in the middle class, that’s where they choose to be.
It is likely true that many of the reasons why a middle class person might have financial problems (e.g. excessive debt or no savings) are the same as some of the reasons why a poor person might have financial problems, but many middle class people have their personal finances in fine order.
Well I don’t know how to do that quote thing that separates each of your questions, so bear with me here okay!
Do I consider myself rich? I do from a personal viewpoint in that I have a very loving wife and daughter, good friends and enjoy life. From a strictly financial viewpoint, yes I would consider myself rich by the standards outlined in the quote I had from ‘The millionaire next door’.
As to when a person crosses from middle class to wealthy–I honestly don’t know. I know that the word middle class is pretty elusive it seems. I know several people who make much more money then me and they consider themselves middle class. So I think it has to be a personal definition.
I started out where everyone did-- right out of college. I had many a poor year when in college just like everyone else. I had to work through college as my parents couldn’t afford to send me. That coupled with Student loans and grants, it is why I am a big proponent of those types of government programs.
Did I go to college–yes and so did my wife. We both have graduate degrees.
What lifestyle did I have? The same as now. I live a comfortable life, but it isn’t extravagant by any stretch. I also have a mortgage too–I doubt my day to day life is much different then most people here. The only difference is I do have a large net worth but that doesn’t impact my day to day life! I seem to have touched a raw nerve with you and with other posters–to be honest I am not sure why.
I grew up in Utah and now live in the Seattle area but the area I live in is pretty small town–you as I recall were looking to move to this area awhile back–Kitsap County. It is reasonably priced for the Seattle market, I purchased in this area for two reasons. One it is small townish, rural and your dollar goes farther here but more importantly it is a good place to raise my family. I don’t make decisions by dollars but it is a consideration–isn’t it for anyone?
In my opinion you should not carry credit card debt at all. Ever. There is good debt and bad debt. A mortgage is good debt. Credit card (and even car loans) are bad debt. I think most financial people would agree with me on that issue. Do I think you are a failure (your words not mine)–not at all. Do I think it makes more financial sense to pay off your credit cards and not keep the money in the bank–yes.
As to scant existance–well my experience has been people learn to live on whatever number there is. I can pretty much guarantee you that there are plenty of people on this message board who would love to live on a scant $20k a year existance! My point was that you live below your means, you find a point where you are comfortable and anything beyond that you pay yourself first. In order to move forward financially debt and savings have to be one of your first considerations (again in my opinion but I think most financial people would agree).
I do max out my 401k every year. I didn’t start as early as I should have or I would be retired by now! And I didn’t understand the issues early on. Luckily my wife is very savvy financially and she also has a job where she maxes out her 401k each year. We also contribute the max to our ROTH each year. I do however make an income that allows that–I didn’t always have that income. But at whatever income I had, I did pay myself first, but not to the max at first as I didnt’ have the income (or thought I didn’t have the income) to do that. It doesn’t happen overnight but over time (compounding interest) and the sooner you start (young people out there are you listening!) the better you are going to be as you get older. I wish I had understood this when I was a wee lad but I didn’t.
So I hope I answered your questions but if I didn’t feel free to ask them again. I didn’t take your questions as snarky and I hope you or anyone isn’t taking my position as gloating or anything like that. In hindsight this thread was probably a mistake on my part but then again who knows, maybe some young person might take away that they should go in on Monday and up their 401k contribution and I would consider that a success!
I don’t consider myself rich. We are pretty comparatively well off, both in income and assets, but we are far from rich - we still have to work for a living. Also, there are at least half a dozen Dopers better off than I am.
But what keeps people from being “rich” -
A lot of people don’t value “being rich” - I have assets because I REALLY like financial security. I like financial security more than I like nice cars or designer purses or granite countertops. But other people with my income would rather enjoy their money by spending it. As said upthread, a lot of people would rather be teachers than stockbrokers.
People don’t see building wealth as a multi generational process - in particular funding college for their kids - but just in general. Millionaire Next Door says your kids should be independent, and they should. But its hard to acquire assets when you leave college with a lot of debt.
Affluenza. Often the people who want to appear rich spend their way out of being rich. And if you really enjoy having stuff, nothing wrong with that. But if rich is your goal, spending money is actually sort of contraindicated.
Thinking that a million dollars (or whatever) is a LOT of money. Or $100k a year is a LOT of money. Don’t get me wrong - $100k a year is relatively a lot of money. But it isn’t fill your bathtub in twenties and roll around sort of money. A lot of people get to certain dollar boundries and think “that’s it, I can have what I want.” But it doesn’t work like that. You’ll still spend yourself broke fast.
Not saving for disaster. Most of us will spend some time unemployed. Or disabled.
I don’t think you realize how few $100,000 a year jobs are out there. I certainly never had one. My brother has worked hard for 20 years, getting promoted, moving up. He is now making $45,000 a year.
That’s more than anyone else in my family has ever made. To me, that’s a huge salary. But my brother is never going to have a million dollars in the bank. He works for the government, by the way, and is a supervisor. So he’s not working a low level job.
I was a computer programmer. I worked hard, but the best I ever did was $30,000 a year. That was a typical salary in my area (central Arkansas). I wasn’t an elite programmer, so I never got an elite salary.
I don’t think I have always thought of success in this manner but I don’t know exactly when I figured out that it wasn’t what I owned that made me happy with my life. At some point time and experience proved to me that nothing really changed for long in my contentment when I achieved any particular material goal. Instead I just set the bar a little higher and found myself caught in a cycle of materialistic cravings.
Since then my definition of success has been contentment with my life and that only comes from what I am able to do for others and the quality of my relationships with people and my environment. The gauge of my success is my degree of contentment at any given time and I know how to make that happen with little physical effort or monetary expenditure.
Actually, thinking of others in terms of class in the material sense is an uncomfortable thought for me.
I am not poor. I make a middle-class salary, though not as much as it could be, based on my educational level and skill set. I am worth (doing the calculation in my head) between $5000-$7000, not counting my unsubstantial retirement savings. I should be worth more, but I just finished paying off credit card debt accrued during my grad school and post-doc years. Now I have no debt. I can afford a nicer car, but I’m of the philosophy “if it ain’t broke, don’t fix it”. Plus I hardly drive it anyway.
Why don’t I make more money? Why am I not worth more? Because I’m not very ambitious. I like working 8 hours a day, rather than 10. I don’t want to be “on call” and walk around with a Blackberry all day. I don’t want responsibility and power. I just want to make a living and then go home and enjoy life. Which, for me, doesn’t take much. Surfing the web. Reading library books. Decorating flower pots. Taking long walks. I don’t even eat that much. I don’t want to move up the socioeconomic ladder because I’m comfortable enough as-is. In fact, at a certain point, with more money comes more problems (Biggie was right). I already have some problems. Don’t need anymore.
My salary affords me a modest 2-bedroom apartment in a nice urban neighborhood. I have enough money for my hobbies and occassional traveling, and any minor emergencies that pop up. My “toys” are basically my laptop, 13’’ TV set (yes, I’m the butt of jokes at family get-togethers), and cable. Oh yeah, and the electronic keyboard I bought for $80 eight years ago. Out of the blue, I’ll get an itch to learn a song, I’ll learn it and play it for visitors, and then I won’t play on it for two or three years. I haven’t upgraded the cat-scratched furniture I bought six years ago, and don’t plan on it any time soon. I don’t even carry a cell phone. I save about 22% of my income every month, because I want to have at least 3 months of expenses saved up before I start investing. It will take about six months before I get there. Right now, though, I feel okay.
Not that I would turn down a raise or anything. I’m supposed to get one soon, despite the bad economy. And like I said, I am interested in investing my money–just so I know I’ll be fine financially when I get older. I’d rather invest than own property, which I know goes against the American Dream. But I’m fine with that.
Chances are I will never get out of my income bracket, though. I will not be inheriting a lot of money from my parents, even though they are fairly comfortable. I do not plan on getting married, so I will not be able to “move up” the economic strata that way. But then again, I’m not going to have kids, so that will mean I will have more disposable income as my salary and savings creep up. That means I’ll be able to afford luxuries that other people would only dream of. No, they may not be the luxuries that rich people enjoy, but they will still be luxuries. Right now I just have to think of what those luxuries would be so I can have something to look forward to. Props to me: I am going to San Francisco for a weekend in October, just to see Yosemite National Park and the giant sequoias. Being the no-fun cheapskate that I am, this is a major “gift” that I’m giving myself.
So my answer to the OP’s question is personal: I choose to be “middle” because anywhere else is uncomfortable. Either it’s full of hunger and lacking, or it’s full of stress and overwhelmingness. I like the challenge of being frugal without actually needing to be. And I like being a slacker and doing things on my own time, at my own pace. The middle-class lifestyle is the “happy medium” of life, IMHO.
I am just starting out in my career since I graduated a little over 3 years ago, and I follow that advice but I am still lower middle class.
I paid off all my student loans within 3 years of graduating (my loans were about the price of a new Honda Accord. So not small, but not impossible either), and I still have enough money left over to buy a used car and still have several months of living expenses saved after paying for it. I live well below my means. I don’t play the lottery. I have no debt.
Even though I studied for a degree that I thought would offer me decent job opportunities (my job isn’t bad), I am a temp worker and do not get any benefits (to be fair, it is the worst economy since the great depression). I don’t get a matching 401k.
My point is I think you are assuming this behavior (paying off debt, living below your means, not blowing money on crap) will make someone rich. It will not. It will just make them more secure. Being rich is a mix of high income and low expenses over time. For those of us who are low income, we are never going to be rich. We may be debt free and have a cushion, but I am never going to be rich as a temp worker with no benefits.
I have a coworker who is not a temp, she is a hired employee. She makes about 2.5x more a month than I do (she is paid more per hour and works more hours). However she doesn’t even have $100 in savings. And she is in debt already.
So despite making far, far less than her I have a much bigger cushion. But I’m not and will never be rich. But even if she makes 3x more than me, neither will she.
Either way, when people face severe economic problems it usually isn’t due to poor decisions like that. It is usually due to a catastrophic health crisis, a major job loss or a family breakup. Those are the things that plunge people deep into debt. Things like playing the lottery or not investing in a 401k are more minor economic issues.
