The difference their financial behaviours
If you have been observing society, especially class differences you would realise that there is one thing each class distinctively does which allows them to remain in their class system. The poor buy cheap and financially manageable things, the middle class buy liabilities thinking they are assets and the wealthy own assets which pay for their liabilities and invest their money to generate more wealth.
First of all, let me define a few things.
An asset is something that puts money in your pocket.
A liability is something that takes money out of your pocket.
Now, let’s break down each class and their financial views.
Poor (income -> Expenditure)
The poor essentially think about money in the short term, how to acquire money quickly and frequently. As for expenses, the poor would rather expenditure to be made steady, day to day outgoings rather than large outright payments. Poor people buy a lot of things on credit, even though interest can cause them to be paying almost double the original price in the long term, because it is as harmful in the short term, they would rather a longitudinal payment plan. Also, due to the poor living basically pay check to pay check, they do not have the ability to save emergency funds, investments or to pay off debt. Consequently, if there was an emergency, they would have to take out a loan to cover the costs whilst accumulating more debt. The poor do not value financial education and do not invest in self-development as money itself is a sensitive topic.
Middle Class (Income -> Expenditure -> Liabilities)
The middle class have the same mentality as the poor, however, they just have a larger income than the poor. The middle class spend their money on expenditure such as bills and necessities. The middle class like to save money, and let the money sit there for a rainy day. The middle class also like to spend their spare change on liabilities thinking they are assets. As we recall, assets put money in your bank account, I never knew designer shoes were an investment.
I digress, even if their income increases, so do their liabilities due to poor financial education.
The Wealthy (Income -> Assets -> Multiple Streams of Income)
One of Warren Buffet’s most famous quotes “Rule #1: Don’t lose money. Rule #2: Never forget rule number one.”
The wealthy do not aimlessly spend their money. They are diligent with their money, if you have money you either invest or spend and they would rather invest and create a continuous gain of wealth. Wealthy people think ahead! When the wealthy invest, they only take small calculated risk in order to maximise a great outcome, hence why the wealthy tend to invest in companies or currencies when people aren’t aware of its value. The wealthy never stop learning, they keep up with the times and they allow their knowledge to drive their decisions. Through diversifying their investments, they are able to create a compound interest on their money as well as pay less tax due to legal tax laws. The answer isn’t earning more money because you get taxed more, it’s about how you are investing your money and keeping it.
Obviously, there are external variables which contribute to the class system and I am highly aware of that. But there are people who have made it out of the lowest places because they were aware or decided to financially educate themselves. Wealth is generated through the mind, education and experiences. If you think like the wealthy, you will ultimately become like the wealthy. So, let’s change our minds, and turn our liabilities in to assets! In hopes to produce wealth in the long-term.