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10 Differences Between Middle Class And Rich People

10 Differences Between Middle Class And Rich People

According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined. But what about the people in between? The middle class? You may be considered middle class. You’re not poor, but you’re not rich…yet. The middle class seems to be shrinking, according to the data revealed over the last couple decades. That means you’re going to be less likely to be middle class in the future. You’ll more likely be poor or rich. Which side do you want to be on?

If you want to be on the side with the rich, you’ve got to start thinking like the rich. Here are 10 differences between middle class and rich people for you to learn from…

1. The middle class live comfortably, the rich embrace being uncomfortable

“Be willing to be uncomfortable. Be comfortable being uncomfortable. It may get tough, but it’s a small price to pay for living a dream.”
-Peter McWilliams

middle class and rich differences

    “In investing, what is comfortable is rarely profitable.”
    – Robert Arnott

    It’s comfortable to work a “safe” job. It’s comfortable to work for someone else. The middle class think being comfortable means being happy, but the rich realize that extraordinary things happen when we put ourselves in uncomfortable situations. Starting your own business is a risk and risks can be uncomfortable, but a little risk is what it takes to create wealth and achieve superior results.

    Step out of your comfort zone. Look at all your options. You will have to be at least a little uncomfortable if you want to become rich. You might even have to fail and that’s great, because if you’re not failing, you’re not doing much.

    2. The middle class live above their means, the rich live below

    “There is no dignity quite so impressive, and no one independence quite so important, as living within your means.”
    -Calvin Coolidge

    rich and middle class

      You won’t catch the average millionaire in a $100,000 car or a multi-million dollar home. The rich don’t spend their money on depreciating liabilities, they spend their money on appreciating assets and they live below their means. On average, the rich drive cars that are a few years old and they don’t buy them new, according to studies done in the book “The Millionaire Next Door.” Even if they can “afford” that fancy new Escalade, they usually don’t buy it.

      Remember, if you earn $1,000,000/year and you spend $1,000,000/year, you’re still broke.

      3. The middle class climb the corporate ladder, the rich own the ladder

      “The richest people in the world look for and build networks; everyone else looks for work.”
      -Robert Kiyosaki

      Middle class corporate

        The middle class tend to work for someone else. They have a job. A career. Upper middle class tend to be self-employed. They own a job. The rich tend to own the business. They own that corporate ladder that the middle class are busy working up. The rich understand that they need more people working for them to earn more money. The rich understand the power of passive income.

        4. The middle class are friends with everyone, the rich choose wisely

        “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.”
        -Warren Buffett

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        rich and middle class friends

          The rich understand that when you surround yourself with successful people, your own success will follow. Likewise, surrounding yourself with unsuccessful people tends to have the anticipated effect. Your income is usually the average of the incomes of your three closest friends. If you want to earn more, hang around people who earn more. It’s all about aligning your mindset with the mindset of successful people. If you want to be rich, you have to think rich.

          5. The middle class work to earn, the rich work to learn

          “When you are young, work to learn, not to earn.”
          -Robert Kiyosaki

          work to learn, not to earn

            The middle class are easily persuaded to change jobs when someone offers more money. The rich understand that working isn’t about the money, especially in the early years. It’s about developing the skills and traits you need to develop to become rich. That may mean working a sales job to better understand the world of selling. Or it could mean you work at a bank to better understand accounting. If you want to be rich, you should be working to learn the skills you need to become rich. Most rich people didn’t get there by earning a high salary.

            6. The middle class have things, the rich have money

            “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like.”
            ― Will Rogers

            middle class and rich difference

              Back to the fancy cars and big houses. That’s where much of the middle class spend their money. Drive through a middle class neighborhood and you will usually see brand new cars, expensive landscaping and high-dollar homes. The rich understand that to become wealthy, you have to want money more than you want things. If you keep buying things, your money will keep going with them. It’s funny how that works. For example, Warren Buffett still lives in the same home he bought in 1958. And he only paid $31,500 for it.

              Stop buying things and start focusing on keeping, saving and investing the money you earn. If you are a shopaholic, start shopping for assets. Become interested in investing, then look for bargains on stocks and businesses instead of shoes and electronics. That being said, it’s not all about saving your money.

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              7. The middle class focus on saving, the rich focus on earning

              “Your greatest asset is your earning ability. Your greatest resource is your time.”
              -Brian Tracy

              middle class and rich people

                “If you would be wealthy, think of saving as well as getting.”
                -Benjamin Franklin

                Saving is important. Investing may be more important, but earning is the foundation of both. You understand that you need to save and invest, but to really achieve extravagant goals with them, you need to earn more. The rich understand this and work on creating more avenues to earn and earning more with the avenues they have. If you really want to become rich, work on your earning ability, not your saving ability.

                8. The middle class are emotional with money, the rich are logical

                “Only when you combine sound intellect with emotional discipline do you get rational behavior.”
                -Warren Buffett

                middle class and rich money

                  Steve Siebold interviewed over 1,200 of the world’s wealthiest people over the past 30 years for his book “How Rich People Think”, and according to him there are more than 100 differences in how rich people look at money compared to the middle class. One of the key differences he found was that the middle class see money through the eyes of emotion, but the rich see money through the eyes of logic. Making emotional financial decisions will ruin your finances. Warren Buffett explains that investing has much more to do with controlling your emotions, than it has to do with money. Emotions are what cause people to buy high and sell low. Emotions create dangerous business deals. Leave emotions out of this and turn to logic.

                  9. The middle class underestimate their potential, the rich set huge goals

                  “Set your goals high, and don’t stop till you get there.”
                  -Bo Jackson

                  middle class and rich goals

                    The middle class set goals. Sometimes. It’s the capacity of the goals that differ from the middle class to the rich. The middle class set safe goals that are easily obtainable. The rich set goals that seem impossible, difficult or crazy. But they know they are achievable. It all comes back to having the proper mindset.

                    When you’re setting your goals, ask yourself if they could be bigger. Ask yourself if that’s really all you can do or if you can do more. I think you can do more.

                    10. The middle class believe in hard work, the rich believe in leverage

                    “It is much easier to put existing resources to better use than to develop resources where they do not exist.”
                    -George Soros

                    rich and middle class workers

                      Hard work is a necessity. For all of us. If you want to reach the top (whatever that may be for you), you’ve got to put in the work. The problem is that hard work alone will rarely make you rich. You can’t become rich by doing it all yourself. You have to use leverage to truly become rich and stay that way. Leverage works in many ways, from outsourcing to investing. The more leverage you can incorporate, the more time you will free up to work on the things that really matter in your business and your life.

                      Some differences between the middle class and the rich are vast, while others may seem simple and minor. The fact is that if you want to become rich, you have to think like the rich and do the things the rich do.

                      Featured photo credit: Dude Walkin/Alejandro Escamilla via unsplash.com

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                      Last Updated on November 27, 2020

                      How to Set Financial Goals and Actually Meet Them

                      How to Set Financial Goals and Actually Meet Them

                      Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

                      In this article, we will explore ways to set financial goals and actually meet them with ease.

                      4 Steps to Setting Financial Goals

                      Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

                      1. Be Clear About the Objectives

                      Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

                      It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

                      Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

                      2. Keep Goals Realistic

                      It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

                      It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

                      3. Account for Inflation

                      Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

                      Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

                      For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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                      4. Short Term Vs Long Term

                      Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

                      As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

                      By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

                      How to Achieve Your Financial Goals

                      Whenever we talk about chasing any financial goal, it is usually a two-step process:

                      • Ensuring healthy savings
                      • Making smart investments

                      You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

                      Ensuring Healthy Savings

                      Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

                      This is the focal point from where you start your journey of achieving financial goals.

                      1. Track Expenses

                      The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

                      Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

                      If you’re not sure where to start when tracking expenses, this article may be able to help.

                      2. Pay Yourself First

                      Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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                      Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

                      The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

                      Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

                      3. Make a Plan and Vow to Stick With It

                      Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

                      Nowadays, several money management apps can help you do this automatically.

                      At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

                      Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

                      You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

                      4. Make Savings a Habit and Not a Goal

                      In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

                      Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

                      • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
                      • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
                      • If you go shopping, always look out for coupons and see where can you get the best deal.

                      The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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                      5. Talk About It

                      Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

                      Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

                      6. Maintain a Journal

                      For some people, writing helps a great deal in making sure that they achieve what they plan.

                      If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

                      When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

                      Making Smart Investments

                      Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

                      1. Consult a Financial Advisor

                      Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

                      Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

                      2. Choose Your Investment Instrument Wisely

                      Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

                      Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

                      As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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                      3. Compounding Is the Eighth Wonder

                      Einstein once remarked about compounding:

                      “Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

                      Use compound interest when setting financial goals

                        Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

                        Start saving early so that time is on your side to help you bear the fruits of compounding.

                        4. Measure, Measure, Measure

                        All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

                        If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

                        Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

                        The Bottom Line

                        Managing your extra money to achieve your short and long-term financial goals

                        and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

                        More Tips on Financial Goals

                        Featured photo credit: Micheile Henderson via unsplash.com

                        Reference

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