Have you ever wondered what makes you wealthy, poor or middle class? Is it purely income or is there a nexus between social class and religion, race, nationality, family, property, job-description or even the clothing you wear?
The origins of the term “class” came from the Latin word, classis, which was originally used by Roman census takers to categorize citizens by wealth, in order to determine military service obligations.
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However, by the late 18th century, the term “class” began to substitute categorizations such as estates, rank, and orders as the popular way of measuring people up on the ladder. This coincided with a decrease in significance given to status based on birthright, and an increase in the significance of wealth and income as indicators of position in the social hierarchy.
Modernly, income is one of the most recognized hallmarks of social class. But I don’t think income causes or determines social class but rather is a reflection of its status. And I don’t think income is always an accurate measure of a person’s talent, intelligence, skill and ability, as sometimes upper management is far less knowledgeable and competent than many of its subordinates.
So, what makes you wealthy, poor or middle class? I mean, most of us live in the same world, have the same 24-hours, and more or less work as hard as the next person; but then we all end up in one of these 3 categories: the wealthy, the poor or the middle class. (I realize there are different degrees of wealth and poverty, e.g., lower and upper middle class and the destitute, but for simplification, I’ll just use the 3).
I think there’s a reason for the 3 classifications based on your decision about how and what you’re going to spend your hard-earned dollar on. In other words, the category you’ll end up in will largely depend on what you decide to buy with your money on payday; because, as you’ll soon see, the things the wealthy buy are VERY different from the things the poor and middle class buy.
First, let me clarify and simply define a few economic terms:
- Income – money you earn
- Expenses – money you spend
- Assets – things that pay you money
- Liabilities – things that cost you money
1. What Do The Poor Buy On Payday? Simply put, the poor buy “trinkets,” or inexpensive little things that they don’t really need in order to survive; but they like to look at, put on their shelves and curio cabinets and show to their friends. Where do they get this unimportant stuff? They get it from swap meets, flea markets, garage sales, dollar stores, the Internet, thrift stores and a host of other discount stores.
The problem with buying “trinkets” is that the poor waste their money on the things they don’t really need. But more importantly, they miss out on opportunities to make that money work for them by investing it into Income Producing Assets. Unfortunately, their income comes in on payday and then goes straight out the window to buy “trinkets.”
The poor rationalize the never-ending cycle of buying “trinkets” because in their minds these items don’t cost very much. However, over the years the cumulative effect of buying these unnecessary items adds up to a lifetime of income and savings foregone, and little “trinkets” are just about all they can show from the fruits of their labor.
So the problem is the poor don’t use their income to produce or create more income, but instead spends it on trivial treasures that they attach sentimental value to. Further, all of their income is dependent on their own effort, which is dependent on their time, and time is a scarce resource and thus, very limited.
(I’m not intending to demean this group or any other group, I just see a lot of financial difficulties at this time and I’m only trying to help other people by changing the way they think about money).
2. What Do The Middle Class Buy On Payday? This is an easy one, because I was in this group until a few years ago (although I have bought a few “trinkets” in my lifetime too). First of all, this is the group of people that society mistakenly believes are rich. Like the poor, all their income is dependent on their own effort (managing multiple employees takes time and effort too). Quite often, this group’s financial strategy is to educate themselves to exchange their knowledge and expertise for someone else’s money.
An example is when a client pays an attorney money on an hourly basis in exchange for expert legal advice. This sounds like a pretty good deal, right? It can be, but the only problem is if the attorney isn’t sharing knowledge with a client, the attorney isn’t making any money. This can create a lot of life-stress. On the surface the lives of the middle class appear enviable and desirable, but in reality life is often a roller coaster of financial insecurity.
The middle class may earn 6-figure incomes, but what they buy on payday can keep them prisoners of the middle class with a life sentence. On payday, the middle class buy liabilities that they confuse with assets. Remember the definition of a liability? Liabilities are things that cost you money.
The middle class usually confuse the definition of an asset because the typical banking and accounting definition is, “things you own,” like houses, cars, boats, vacations and other expensive toys. In reality, all those things are liabilities because these toys are accompanied by a monthly payment in order to keep. This is true even if you pay cash due to the monthly maintenance costs, such as with a house, a car or a boat.
The dilemma of the middle class is that more often than not, their liabilities raise their expenses or monthly payment level near or above their income level. They actually spend equal to or more than they make. They end up having to go to work to earn a certain amount of money every month just to keep all their toys and maintain their lifestyle, or risk losing it all. Like the poor, they don’t invest their money into Income Producing Assets, which, again, keeps them prisoners of the middle class.
3. What Do The Wealthy Buy On Payday? You guessed it! The wealthy buy Income Producing Assets. An example of an asset would be income generating real estate, businesses, stocks and bonds that pay dividends, second-deeds of trust or CDs that pay interest, or a business that generates a passive residual income (Passive means income not generated by your labor. Residual means once you build it up, you continue to earn from it whether you continue to build it or not, like vending machines or pinball machines => Warren Buffett’s first investment).
The wealthy are extremely eager to find passive income businesses because they continue to pay them month after month, year after year, long after they’ve stopped working at the business. People generally don’t find these passive income businesses unless they actively look for them or, at the very least, are open to hearing about them; then once you find them, be willing to diligently research them. These businesses are out there, you just have to find them and be half-way savvy that, when the right opportunity comes along, you don’t pass it by.
Next, the wealthy take that income from their first asset and reinvest it into more assets, making them even more money. The wealthy then repeat this process, spending income from assets on additional assets that generate even more income, which is then used to buy even more assets. This process continues on and on, making the wealthy wealthier and wealthier. The wealthy continuously spiral up and the poor and middle class continuously spiral down, or at the very best, stay even.
That’s why the gap between the rich and the poor keeps growing faster than ever. While the rich continue to accumulate more assets, the poor keep buying “trinkets” that makes them even poorer, and the middle class keep buying liabilities sending them deeper and deeper into debt and stressed out of their minds.
4. Now I hear you say, “But I don’t have enough money to buy any assets.” Really? Not enough money? But you have enough money to buy “trinkets” and liabilities (cars, motorcycles, boats, jet skis, jewelry, designer clothing, cruises, vacations, credit card debt, etc.). Maybe that’s the reason you don’t have enough money to buy assets. I mean, you wouldn’t die a horrible, painful death if you stopped making poor buying decisions and saved a little money every paycheck, would you?
Believe me. I’m not oblivious or insensitive toward the current economic state and the lean job market. But the fact is you don’t need $25k, $10k, $5k or even $2,500 to invest in an Income Producing Asset. What you really need is something that costs you nothing at all; a change of mindset and a different perspective as to money and how to generate it. Come payday no one’s pointing a shotgun at you telling you to buy “trinkets” or liabilities under duress, right? Realize that in order to make a “buck” there are alternative ways instead of always trading your time and labor for wages and working for someone else and making them rich instead of yourself.
Creating wealth is not a mystery, but a formula. The only reason why you don’t create wealth is because you don’t know the formula or choose not to apply it. If you’ve made it this far in my article you already know the formula, “Income Producing Assets.” So, maybe it’s time to begin thinking about yourself, your family and your future; change your mindset, begin thinking like the wealthy and start making better buying decisions.
Changing the way you perceive money and how you make it doesn’t cost you anything at all, but will be the very foundation and turning-point to a new, abundant, rewarding and happy life.
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This article content was conceived from a concept by Tim sales.
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