For the majority of my adult life, I figured most of us spent money the same way. The middle class was middle class because they didn’t make as much money as the rich. The rich had high-paying jobs so they could afford boats and mansions. Recently, as I read more books, I discovered that this is not at all the case. The poor, the middle class, and the rich all spend and value money completely differently. If I had to use two words to define the difference, they would be “delayed gratification”. To understand the spending habits of all three classes we need to take a look at how money is received, money is spent, and how money is valued. Let’s jump right in.
The Poor. Disclaimer: I do not speak for all poor people and I am not trying to lump everyone together. I understand that many people fall on hard times. These observations are just from what Kris and I have witnessed with our own eyes. For the poor, there is no financial education, at all. Money is received via social security, pension, disability, or food stamps and immediately spent. There is no thought of tomorrow. I literally mean that tomorrow is a question mark. They spend and pray that everything will be okay. They have debts all over town. They live in fear of getting repossessed, losing their checks, or someone stealing from them. There is no such thing as a budget in their world. In the best case, they figure out how to survive for a month until their next check arrives. Given the chance to become better with money, they would pass on the opportunity.
The Middle Class. The middle class is the hardest of the bunch because who defines what the middle class is? I think the lack of definition also makes it confusing to most people. The middle class wants to pretend that they are rich. They receive nice-sized checks from their jobs. They know that they should be investing their money, so they are putting large sums of money in their 401k. Once they figure out their budget for housing, food, and clothes, they can see exactly how much after-tax money they have remaining. And this is where they get into trouble. Using their earned income (from a job) they then proceed to buy nice cars, big houses, expensive toys (ATVs, motorcycles, boats), nice vacations, private schools, and everything else in between. The middle class are usually employees or self-employed. If asked to survive for 6 months without a job, most would struggle. They want everyone to know how much money they make, how expensive their vacation was, or how big their house is. Their dream is to be rich. The middle-class household usually has two adults working stressful jobs until they are in their 60s, or in some cases their 70s. They live in high cost of living areas where they have to work until death. All for the sake of owning liabilities. I considered myself middle class for the last 20 years.
The Rich. The rich do not work for money (from the book Rich Dad Poor Dad). If a rich person is starting out with no money and a job, they do not use their earned income to buy liabilities. Please understand what I said and how I said it. I called the person “rich” even though they don’t yet have money. Being rich is a mindset. The rich person obtains assets with their earned income. This means that once a paycheck is received, the bulk of the income goes into buying assets. Assets earn a rich person income. Rich people buy assets such as stocks, bonds, real estate, and businesses. Rich people create assets such as books, art, writings, music, and videos. The rich person believes in delayed gratification. As the rich person keeps working, they accumulate more assets, which in turn produce more income. Instead of going to buy a car with earned income, the rich person accumulates enough income from assets to pay for the car.
The Rich 2. The rich are always becoming more financially educated as they work their jobs. They do not rest on their laurels. They understand money is a mindset. They have an abundance mindset, not a scarcity mindset. The world has enough money for everyone who wants to learn how to obtain it. If the rich person wants a car that costs $500 a month, they do not buy it with a loan. They study how to obtain real estate that will produce $500 a month. The rich person slowly removes themself from the act of working for money. Their assets eventually do all of the work accumulating the wealth. The rich person has an asset army doing all the work for them. They have rental properties collecting rent. They have stocks and bonds paying dividends. They have music, blogs, and videos paying royalties. They have businesses making a profit. The rich person is now financially independent.
The Rich 3. Now that the rich person has retired, they can now focus on becoming rich. The rich understand business and why owning a business is necessary. They understand tax law and can write off most things under the business. If they want a nice car, they start a Turo rental business and buy the car as a business expense. If they want a boat, they start a charter business and buy the boat as a business expense. If they want nice clothes, they start a YouTube channel reviewing clothes, and buy clothes as a business expense. The rich do not want anything in their name, the business owns everything. The rich also help people. They understand that the more problems they solve, the richer they become. They have earned the privilege of financial freedom. They have leveraged their financial education and financial discipline to become financially independent.
As you can see, the difference is mainly a mindset. You can start from a poor background and become rich. You can become rich when your bank account is poor. The middle-class buy a boat as a liability, the rich buy a boat as an asset. A young man who works at McDonald’s can become rich faster than a Ph.D. if he understands the mechanics of being rich. By keeping his expenses low (or zero), helping people solve a problem, preventing lifestyle inflation, and optimizing his freetime, it can be done. It is done almost every day.
What mindset do you currently have? Which class do you strive to be in? Becoming rich will require a lot of you. “In order to have more, you will need to become more”. Can you see yourself becoming rich? What are your financial goals? Can you envision a way to achieve your goals? If your goal is to have $5,000 a month of passive income, do you have a path to complete this? It’s okay if you don’t know how to get there. That is what financial education is about, slowly creating a yellow brick road to financial success. Believe me, looking back to when we started and where we are at now, it is night and day. And each day, our minds expand even further. Only you can answer the question of how you buy your bling.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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