Recently, I read an article quoting the comments of a wealthy real estate investor who disparaged people who follow a popular radio/podcast personality who offers financial advice by calling them dumb. He said if you want to be rich, you must stop focusing on savings and begin focusing on becoming rich. I disagree with his commentary.
Let’s define how I see the difference between wealthy, rich, and financially, stable.
Ø Wealthy is a person or people who have few wants they can buy food, heat their home, go on vacation, handle emergencies without going into debt, buy a car without financing, and have little or no consumer debt. Think of your great Aunt Helen who regularly takes luxury river cruises.
Ø Rich people fly charter or first class everywhere. They own a large estate. They have staff to assist them in their personal life and may make use of security personnel. Think of Taylor Swift, Oprah, or any of the English royal family.
Ø Financially stable people pay their bills, don’t have consumer debt, invest their money in index funds, and can handle emergencies without going into debt.
These are the reasons I disagree-
· Not everyone is going to have the wherewithal to become rich.
· Often privileged people think everyone can pull themselves up by their bootstraps, when some people don’t have boots, much less bootstraps.
· It’s okay to be financially secure you don’t have to be rich to be happy.
· Being able to manage financial risk is tricky many people who have the capacity to become financially stable may be risk-avoidant for many reasons. For example, they may have young kids or elderly parents they support and they can’t justify using their money for a risky investment.
· The reality of most Americans is that their income will be within the median; it’s not realistic to say everyone can be rich, and if they aren’t, they are dumb.
· If a person earns $70,000 (roughly the median) annually in America, they can strategize to make the most of the income they have financial stability is a good option for more Americans than striving for wealth or becoming rich.
My point is that we are all different. Low-wage individuals may have difficulty increasing earnings because they face many challenges. Perhaps they rely on public transportation, they may live in an area that has few higher education options or they simply can’t afford higher education. They may have family obligations that prevent them from making choices about where or how they work.
Middle-income people may have made choices about using debt that works to their disadvantage. They may have young children who require child care. They may be supporting their parents. They likely have student loans.
There are many reasons people have financial challenges, but one thing I think is certain, unlike the quote from the article I read that said Americans save too much money and don’t have a problem with credit card debt, this is not correct. Americans spend about 10% of their income on debt INTEREST payments annually. That means if you earn a median of $70,000 annually, you are spending $7,000 on debt interest each year.
What would you do with an extra $7,000?
It can be spent on a class that will help you advance in your profession and earn an extra 10% next year.
You could spend $7,000 each year on your mortgage thus reducing the overall cost of your home.
How about visiting a bucket list travel destination and becoming more knowledgeable about the world?
$7,000 isn’t all the money in the world, but if you invested $7,000 in an index fund each year, by the end of 10 years with a growth rate of 4%, you would have $94,000. That’s a $24,000 increase.
There is room for all manner of people and incomes. Some people want financial stability, some people want to be wealthy, and some people want to be rich. The thing to remember is that money can’t make you happy. Pursuing wealth or becoming rich requires sacrifice, as does becoming financially stable for most of us becoming financially stable is within our grasp, but wealth and “rich” may not be. Don’t spend all your life lamenting your inability to have what Oprah has, or even Aunt Helen. Make the most of your life. Become wealthy or rich if that is your priority, or become financially stable and be happy with that.
My caveat to this blog post is that I write for people who earn enough to be within the median. I don’t write for impoverished people, and it would be ludicrous of me to suggest that if a person is living in poverty they can magically improve their circumstances. I suppose they can, but I’m not the person to help with that challenge.
I write for my former boss, who at 50+ years old had never been out of debt since she was 18 when she got her first credit card, had no retirement plan, and bought a million-dollar floating home. I don’t know her income, but I suspect between her and her husband they were bringing in around $200,000 annually. They had no excuse for not being ready for retirement, something she indicated she wanted. They routinely spent and never considered investing. No 401k’s, no IRA accounts between the two of them. They both have aging parents and college-aged kids. I didn’t give her advice, but I feel concern for the late-in-life scramble she and her husband are facing.
I know a woman who has a husband and two school-aged kids. They earn low to mid $200,000 and have a lot of debt. They have little self-control when it comes to their spending habits, yet lament the debt they carry, including two student loans. They are brilliant, capable, and hard-working. But they like stuff and never hesitate to buy what they want, and they buy their kids what they want without thought. If they were serious about getting out of debt they would change their spending habits. They are young, and I have high hopes for them as their family grows.
The bottom line is only you can decide where you want to be on the financial spectrum. Whatever choice you make will be right for you and if you simply want financial stability, that’s fine and you’re not dumb.
