Many people believe that all they need to do to become wealthy is earn more money or save what they have. This isn't all that surprising considering how many people subscribe to the idea that their income directly corresponds to their wealth.
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But what many people who are considered “middle class” don't realize is that income is only part of the picture. Those who achieve true wealth are those who know how to use and invest the money they earn in a way that benefits them in the long term.
If you've been living with a middle-class mindset and want to make a change, you may need to take a moment to reflect on the behaviors and behaviors that are holding you back from becoming rich. Here are some of the most common things that middle-class people tend to do that wealthy people don't, and what wealthy people consistently do to maintain their wealth.
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The rich invest, but the middle class doesn't.
The middle class tends to save money, and the wealthy tend to invest their money.
Dr. Robert R. Johnson, CFA, professor of finance at Creighton University's Heider College of Business, explained the history of the stock market.
“From 1926 to 2022, the stock market delivered far more returns than Treasury bills and government bonds,” he said. Large-cap stocks (think the S&P 500) had a compound annual return of 10.1%, according to data compiled by Ibbotson Associates. Over the same period, long-term Treasuries returned 5.2% per year, and Treasury bills returned 3.2% per year.
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“To put it into perspective, a dollar invested in the S&P 500 at the beginning of 1926 would have grown to $11,535 (with all dividends reinvested) by the end of 2022. Once invested in securities,” he added. It only increased to $22.05. Investing the same dollar in long-term government bonds would have only increased you to $130.89. It is beneficial to invest instead of just saving. And it's not a close call. ”
RatePunk CEO Justin Albertynas says, “Wealthy individuals also prioritize long-term investment strategies. They are more likely to stay invested and benefit from compound growth over time. According to research from Spectrem Group. , 75% of U.S. billionaires attribute their wealth to long-term investments.”
Middle-class individuals rarely have multiple sources of income
You may have heard it before, but it's worth repeating. Having multiple sources of income is essential to building wealth. And you don't just need to build it, you also need to maintain it. After all, if one source of income fails, you can rely on others.
“There are many important financial behaviors that wealthy people engage in that are different from those of other people. [economic classes] Some people don't,” said Sebastian Janier, owner of Manitoba Property Buyers. “They are always focused on how they can generate additional sources of income. Because it doesn't take much for a company to completely disrupt one of the industries it does business in.
Mr. Albertinas further added, “I invest in assets such as stocks, real estate, businesses, and other ventures to generate multiple streams of income so that if one stream fails, the other stream still exists.'' We have confirmed that it is operational,” he added.
Wealthy people invest in education
Another habit that helps rich people stay wealthy is investing in their education. A common behavior of the middle class is to learn only up to a certain point and then stop.
“Wealthy people continue to invest in themselves even after they have achieved what others define as success,” Jania says. “This habit is the single biggest thing that distinguishes wealthy people from other people. For other classes of students, this typically means completing high school or post-secondary education. [their] Learning stops forever. But wealthy people learn for the rest of their lives through coaching, mentorship, and courses. ”
Middle-class people often lack financial discipline
Having a budget is not a bad thing, nor does it prevent the middle class from becoming richer. After all, a budget allows you to track your investments, spending, and spending habits. But one of the great things about wealthy people is that they have strong financial discipline that helps them preserve their wealth.
“The middle class often spends too much of their income on discretionary expenses such as eating out, entertainment, and goods, which can inhibit long-term savings and investments,” Albertinas said. “Tracking these expenses is the key to accumulating long-term wealth.”
The middle class “tends to make emotional decisions with money, underestimate their potential by setting safe and easily achievable goals, and believe in working hard without leveraging their resources.” ” added James Allen, CPA, CFP, and founder of Billpin.com.
The wealthy, on the other hand, “make logical decisions with their money, set ambitious goals that seem impossible, and believe in leverage to make better use of existing resources.”
Wealthy people understand the impact of taxes
Taxes are a part of life no matter who you are or how much you earn. However, many in the middle class do not fully understand how taxes work. This is what hinders their advancement.
“A big part of financial education is knowing how taxes work,” Albertinas says. “Knowing them and successfully avoiding them can take you from middle class to wealthy. Wealthy people engage in strategic tax planning to optimize their tax liability and keep more of their income.” This includes taking advantage of tax-efficient investment vehicles and statutory tax deductions.”
Middle-class people try to catch up with the Joneses
The term “keeping up with the Joneses” essentially refers to the idea of trying to look rich when in fact, you are not. That's what many middle class people do.
“The middle class is focused on showing off to their friends by looking rich,” says Jania. “The wealthy, on the other hand, focus on being frugal and reinvesting their savings so they can pay for whatever they want with the passive income they get from their investments. The middle class does this completely backwards.”
However, middle-class people tend to overspend trying to keep up with the Joneses and rely on consumer debt, such as credit cards, mortgages, and car loans, to maintain their lifestyle. This is not about building wealth.
“The middle class often buys depreciating debt, such as new cars and expensive homes, and lives above average lives,” Allen said. “Rather than spending on depreciating debt, the wealthy invest in appreciating assets and live below their means.”
rich people strive to be the best
“Typically, middle-class people have comfortable jobs and comfortable salaries, and they perform at a comfortable level rather than demanding peak performance from themselves,” Jania says. “Wealthy people demand top performance from themselves because they typically work on commission or a more performance-based approach.”
At the same time, middle-class people often rely on others to succeed. This could be because you are hoping your boss will give you a raise at work. Or they might try to get ahead through government programs or high-interest debt. But the problem with relying on others for your success is that they don't always succeed, and you're more limited by what they can offer than what you can do yourself.
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This article originally appeared on GOBankingRates.com: Stop budgeting like the middle class and do what the rich do instead
