***In case you have not yet read our article on The Poor, The Middle Class, The Rich, and The Abundant, take a quick look at our previous article entitled, “Why The Poor and Middle Class struggle.” Reading that article will help set the context, and lay the groundwork for what we are jumping into today. If you don’t take the time to read it, you run the risk of fundamentally misunderstanding this whole article. Just know that when we reference the Poor, Middle Class, Rich, and Abundant, we are not simply talking about financial standing.***
In life in general, and especially with money matters we need to be aware of, and eventually fix what is wrong, if we hope for things to go right.
If we are about to endeavor on a journey, we would be wise to prepare ourselves against the elements, the threats, and pitfalls we may face along the way.
Or to say it another way, in order to have what is right show up in our lives, oftentimes we have to fix what is wrong.
Perhaps you are in the thick of adversity and pain in your life right now, and this article will come as a boon to you and your situation.
Or perhaps life is pretty darn good right now, and you are feeling a little like this. If that is the case, you may be wise to take some advice from the Former President of The United States, John F. Kennedy who said, “The time to repair the roof is when the sun is shining.”
There has been much debate as to what it is that makes a difference in the socioeconomic standing between “the have’s and the have not’s.” Most of this commentary almost inevitably ends up in finger-pointing political debates which is typically less than productive and does not move anyone forward in productive ways.
This article will do just that, help you and me move forward in productive ways. It will also pull back the curtain on some of the critical elements that create and build wealth. The paradox is that many of these points discussed may at first glace seem common sense, we may even have an intellectual understanding of these points. However, the challenge in life and in money is to bridge the gap between what we may intellectually know and what we actually do and implement. Oftentimes there is a great distance between what we know and what we do. An honest and critical evaluation of self will bring to light newfound insights and execution steps.
What are these 9 Mistakes that the Poor and the Middle Class make?
The Rich and the Abundant make different choices than The Poor and Middle Class. I think we all know, but tend to forget that the decisions that we make, even the seemingly small and insignificant ones, will determine the quality and direction of our lives. We would be wise to start, if we have not already, to identify what choices we are making now that are not taking us in the directions we want to go. Then we ought to equally identify those choices we can make that will take us where we ultimately want to end up. Read on for more details about these choices . . .
The Poor and the Middle Class do not see, or believe, that the stepping stone to their future is right here, in front of them. It is found in the present. They fail to see that they can do something now. Far too many people have turned down building a business, or investing in real estate because it would only create “ONLY” a few hundred dollars of monthly residual income. If a person were to take action and increase their residual income by just a few hundred dollars a month, a few years down the road that person could quit their day job if they wanted to, get out of debt, go on that trip they have always wanted, or a host of other life-fulfilling activities. The Poor and Middle Class underestimate the power that little steps can end up creating big results.
3. Lack of courage
When The Poor and the Middle class come across “The Deal of the Decade,” they back down. They give in or give up. Why? because they have not invested in themselves to be able to trust their decisions. They get so mentally tired from making poor choices again and again that it becomes a self-fulfilling prophecy, they cannot seem to make a good decision. What we all need to understand is that courage is not an attribute that we are born with, but a skill that is learned.
4. Investing in their Education
I am not merely speaking about High School or a University Education. I know tons of people who went through the higher educations programs only to never pick up another book for years or even their entire life! Sometimes the Poor and Middle Class are closed off to learning in new ways. One thing that I have found out is that you can either spend some money to learn and be trained by a mentor OR you can miss out on, and even lose money, by just trying to figure it out on your own. Or as Brandon Broadwater puts it, a person can, “Spend your money learning, or lose your money learning, either way you’re going to learn.” Worse yet, most of the time when trying to figure it out on your own most people will have inconsistent, hit or miss, results. The middle class, and certainly the poor do not put in the time to learn about money. Rather they spend most of their time working for it.
5. Financial Investing
Far too many middle-class investors only play offense in their investments. They focus solely on asset and materialistic accumulation rather than focusing on critical aspects such as cash flow. They risk losing all of their “nest egg” to the poker players on wall street, they do nothing to invest in assets that are insurable. Instead of creating income producing assets, they tie their money up in mutual funds and 401k’s. To paraphrase a Warren Buffett quote, “Middle Class investing is like waiting for sex until you are 50.” Meaning that if you are waiting until that magic day when you have “enough” money saved up is going to have you always chasing a horizon, one that you can never reach. I know plenty of retirees who, even after accumulating a significant sum have trouble spending that money because they want to leave it to their kids. Or they postpone and tie their money up for years when they could be diverting that money into things like a self-directed IRA to buy real estate, or starting a business that can not only be “your retirement” but also provide income while you are enjoying your working years.
By contrast, let’s talk a little bit about how the poor handle their “investing.” The Poor end up taking the approach of hoarding money so they can spend it on consumer items. They live in a mindset of scarcity vs one of abundance. It is safe to say, that most investors who have a Poor mindset do not save or invest in their future because they are too worried that they may lose what they now have. They will not let go in order to gain.
So what do the Rich and Abundant do?
They invest in assets that are insurable and have considerable downside protection, as well as asymmetric risk vs reward.
What do we mean here?
An example of an insurable asset would be real estate. If the real estate burns down, they have insurance for that.
Asymmetric risk vs. reward means that a person could be wrong, or lose 4 out of 5 times, and still get their money back or come out ahead. Most poor and middle-class investors take literally 100% of the risk in their wall street investing in hopes of a return. The Rich and the Abundant make sure that if their investment goes south they can recoup the vast majority, if not all, of the return.
The Rich and the Abundant search for investments that are backed by insurance or a tangible asset.
To better understand the investing mindset of the Rich and the Abundant, we need to think and operate like a bank. For example, a bank takes your money in a CD and gives you 1% return, for 1-3 years. They assess a penalty to you if you pull your money out early. So they are locking you in for a set time period (Bank 1, You 0). They in turn loan that money out at 3%-12%+ (Bank 2, You 0). Then at the end of your term you walk away with a few extra bucks (You, finally, 1) and the bank has likely made 100%-1,000% on your money. End result (Bank 3+, You 1).
So how do we do that?
Let’s say that you have cash sitting around and an associate approaches you about using your money to buy land and start a car wash business. You could structure the deal so that not only will you make a healthy return of interest on your money as long as the business does well, but you could also be the sole owner of the land and buildings if the business goes south. That way if the business plan works, you get a healthy return. If it doesn’t you have a real, tangible asset you can sell to get your money back.
This is just a quick sample of how the rich and abundant think, and use their money for investing.
If you are investing in Real Estate, don’t fall in love with the paint color, or the appliances, fall in love with the numbers.
When everyone else is freaking out because of a market crash, the Rich and Abundant have learned how to mitigate risk and are excited because everything just went on sale. To learn more about that, do a quick search about Sir John Templeton, and see how he made his BILLIONS.
Rich and Abundant people learn how to manage risk, and even use it to their advantage.
6. Pay too much in taxes
The Rich and the Abundant pay less, as a percentage, of tax. While the Poor and Middle Class pay, as a percentage, the highest amount of tax. Love him or hate him, take Donald Trump for example. His team of experts have used IRS tax codes to their advantage so that he has not paid federal income tax in years. The man is worth Billions and Billions of dollars and he has not paid Federal income tax in years. How? Because he and his team know the IRS tax codes to their advantage.
The Rich and the Abundant know the power of using a corporation or a business entity to their advantage.
Through a business entity you get to change the order of how tax is paid. See the example below for illustration.
Love it or hate it, this is how IRS tax code (and tax code in many other countries) works. So you might as well make use of the gift that is a business entity. However, owning a business is not the only way to lower your taxes. Talk to a qualified Accountant or Attorney. Don’t endeavor to go the DIY approach on this one. I know far too many people who are stepping over dollars to pic up dimes. They don’t want to spend a few hundred dollars for professional advice and they miss out on thousands of potential tax savings.
7. Don’t Understand Spending Patterns
Poor and Middle Class spend money they don’t have to make people think they are rich. The Rich and Abundant don’t always ride in flashy cars or wear expensive clothes because they don’t want people to know, or don’t care if others know that they are rich. So much of what we do comes down to status.
We may have the goal to be a millionaire so that we can finally spend quality time with our family. It is not really about the money it is about the emotion and the freedom to do what you want.
What if you could change your spending patterns and still achieve the same results?
The Abundant understand the psychology of money and spending patterns.
8. They have little to no Staying Power
The Federal Reserve has stated that “52 percent of Americans would not be able to cover an emergency of $400.” Other sources have stated that 76% of Americans live paycheck to paycheck.
These are both examples of a lack of staying power.
So what does “Staying Power” mean?
Or as Brandon Broadwater has said, “The seeds of our actions need time to come to fruition.”
If you are starting a business you should probably shouldn’t quit your day job right away. If you are going to invest into the stock market, you should probably not invest your entire life saving and all of your available credit into the next hottest stock.
About the only thing that most financial gurus can agree upon is that it is wise to have an “Emergency Fund.” 3 months to 1 year of monthly living expenses saved up.
The Rich and Abundant do this by creating residual income, as well as multiple streams of income. That way if one of their streams of income dries up, they still have several others.
How do they do this? Most prevalently the Rich and Abundant own cash flowing real estate. They also own businesses, annuities, dividend paying stocks or bonds. All of these can produce a paycheck. Month in and month out, increasing their Staying Power.
9. The Poor and Middle-Class Lack Proximity
This is by far the biggest mistake that is made. Now with social media, it is becoming easier and easier to gain proximity. I don’t think that people stay in Poor or Middle-Class mindsets because they want to. They don’t stay Poor or Middle Class financially because that is what they have always dreamed of. It is because the people they hang out with and associate with are likely Poor and Middle Class too. They just simply need to be “shown how” from someone who has already done it, from someone who already lives in the Rich or the Abundant quadrant.
It is much less prevalent today as it once was, but it used to be common practice to become an apprentice to learn a skilled trade such as carpentry, blacksmithing, etc. Apprenticeship is however, still alive and well today in the medical profession. A person does not become a doctor unless they have done their “residency.” A soon to be doctor does not do residency because they don’t know what they are doing. They have spent years and years in schooling to learn and understand their trade. There is are elements that cannot be taught in a textbook, they can only be learned from working closely with, and being an understudy to someone who is a master at what they do.
Now if you are going to become something other than a Doctor, or another skilled trade, you will likely have a difficult time finding a person who is willing and able to have you be their apprentice. It is near impossible to find a mentor who is not only masterful at their trade, but who has the ability to teach what they do. There are plenty of top producers out there, but it is rare to find one who can teach how they achieved their success. This challenge is only compounded when everyone who has attended a weekend seminar, or read a book is calling themselves a coach or a guru.
This is where Brandon Broadwater and Master Your Power Within comes in. Brandon and the Master Your Power Within team have handcrafted programs and courses that are calculated to help their students become masters in real estate, business and entrepreneurship, and master teaching.
Far from being an out of touch academic or philosophical lecturer, Brandon Broadwater mentors and teaches strictly on topics and trades with which he can be, and has been determined to be a masterful practitioner. He offers students of Master Your Power Within that proximity and mentorship that is critical to achieving success in the aforementioned areas in the most direct manner possible.
We will come to find that either we figure the money thing out and we get more freedom in our lives, OR money is going to drive us AND will dictate most of our decisions.
Sir Francis Bacon wisely said,
“Money is a good servant, but a bad master.”
After reading about these 9 Things that The Poor and Middle Class get wrong about money, what are you going to do differently?
Tell us in the comments.
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