How The Poor- Middle class -and Rich spend their money9 min read

How the rich are getting richer

     That’s true, The Rich are getting Richer- Here is why..

Have you ever wondered how do rich people are getting more richer while poor people keep staying poor, and the middle class seems to be shrinking?

Well, this is nearly mysterious than what it may appear when we look at the specific difference in how the broke people, the middle class and the rich spend their money.

This is such a simple concept that knocked me out of my chair when I finally understood it. I am going to show you exactly how the rich spend their money, and you can evaluate it by yourself how they keep getting richer, and the poor keep getting poor, and why the middle class remains so stress-out.

 Before we get started I want to review some financial terms that will be using during this explanation. The term we should be familiar with are cash-flow which means the money you bring in, expenses which mean money you spend, and asset now this is the most confusing one. You are probably familiar with the traditional definition of an asset which is something you own.

However back in the 1990’s Robert T Kiyosaki introduced us to a new definition of an asset in his series of books Rich Dad, Poor Dad. Robert taught us that an asset is something that pays you, and that is the definition we will be using here. Liability is the last term and it is defined by something that costs you money.

For example, a house is typically viewed as an asset, but can it actually be a liability? Yes. With our revised definition, anything that costs you money is a liability, not an asset. If you have a mortgage, your house is an asset to your banker because it pays him or her every month.

But could a house be considered an asset to you? Yes in the right circumstance it could be when it pays you money. Let’s say you buy a house, you put to rent, and he brings you a positive cash-flow every month after expenses.

That can be considered as an asset. Okay, let go over those terms before we continue. Cash-flow is money you make, expenses that is money you spent, asset pays you, and liability costs you.   

Now let’s take a look at how poor people spent their money

Now when I say poor people I am not referring to the destitute. I am speaking about that large portion of our society that leaves from paycheck to paycheck, and we never seem to have any money.

In fact, most of the time they are short of money before the end of the month, and I am sure many of you are related to that group. On payday, poor people buy what I am going to call stuff. Well, what is stuff? That is inexpensive things that people buy that they don’t really need to survive.

You go to someone’s house and you can’t find any counter or table in the whole house because of the stuff on it. Their houses and cars are full of stuff. Where did they get all those stuff?

They buy it in the free market, at the dollar store. So Cash-flow comes in and then it goes straight to the expenses to by stuff. You see poor people never educate themselves on assets and liabilities.

They justified buying those stuff because it cost less, but over the years that’s what they can afford. The problem is their Cash-flow never produce or create more cash-flow. Now please understand I am not undermining or giving any shot at this or any group.

I just see a lot of financial difficulties out there, and it really doesn’t need to be that way. Creating wealth is a mystery, it is a formula. The only reason why people don’t create wealth it’s because they either don’t know the formula or don’t apply the formula.

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Now let’s take a look at the middle class

The middle class is the group that the society mistakenly think they are rich. No there are not. Yes they typically earn a six-figure income and many of them appear rich, but what they buy with their money keep them prisoners of the middle class. What the typically buy are liabilities.

You remember the definition of a liability;  things that cost you. By buying liabilities the money raises their expenses. Liabilities are items like cars, boats, houses, airplanes, credit cards debt. Now let’s see how this happens.

The middle class gets a nice paycheck to let’s say $10.000 for a month. They then split that down in two, half to pay their monthly expenses, and the other half to make a down payment for a new car.

The car costs $5000 down, and after they added on the maintenance and the insurance. That liability now costs eleven hundred new dollars every single month.

After a few months they want a boat, then a vacation home, a vacation on their credit cards. Before you know it their liabilities have raised their expenses level to near or above their income level.

They actually spent more or equal to what they make. This means that they have to go to work and have to make a certain amount of money every single month just to cover their liabilities.

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The other important issue with both poor people and the middle class is that normally all their Cash-flow is base on their own effort. Meaning that they educate themselves to exchange their knowledge and expertise for someone’s money.

Also, the money they earn is usually the highest tax form of income. For example, an attorney is knowledgeable about the law, so people pay him or her in exchange for that knowledge on an hourly basis.

The problem here is that if an attorney isn’t sharing that knowledge with the client then the attorney isn’t making any money. This cause a lot of stress and anxiety in their life, and if you ever ask them to take an afternoon off to play golf with you.

Well, they really can’t because it will cost them a lot of money to take that time off. On the other hand, life is pretty good. The reality is very different, that’s the middle class.

Now let’s take a look at how the rich spent their money.

Rich people acquire assets, again an asset is something that pays you. If you want to become rich buy assets that earn you more money. Acquire assets that produce cash-flow, invest the profit to acquire more asset that produces more cash flow, invest those profit to acquire more assets that produce more cash-flow.

The rich spend their money and acquire things that produce more money. Here is some example of assets that produce more money. Investment is the obvious one, stocks, bonds, real-estates, education is another asset.

If you learn how to do something that will produce you more money and you actually do it that is actually buying an asset. If you think that education is expensive, you should know that it will be hard to find a job without having knowledge.

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Another example of an asset that you can acquire that pay you are cash-generating opportunities. Especially those opportunities that can create passive cash flow. Passive meaning that when you build it up money will continue to flow whether you still building it or not.

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Here is a small example, let suppose you buy a pinball machine and you put it in a barbershop and you don’t spend any profit. You save the profit until you will be able to buy another pinball machine and put it in another barbershop. This, by the way, was Warren Buffet first business. If you don’t know who Warren Buffet is, he is one of the top richest men in America.

The rich are extremely eager to find those passive cash generating opportunities because those opportunities continue to pay them month after month, year after year, long after they stop working on the opportunity.

Relate: The Law of Attraction

Final Thought

I have learned that you can’t find those cash generating machine unless you are open to hearing about them. And when you find them, you must be willing to find what fits you then act. Those opportunities are out there you just need to find them, you must be opportunistic enough that when it present to themselves you don’t miss them.

So remember poor people buy stuff, the middle class buy liabilities, and the rich acquire asset preferably cash generating opportunities that can produce cash flow. They then take that cash-flow to invest it into an asset that will produce more cash-flow. That is the wealth creation formula.    

3 thoughts on “How The Poor- Middle class -and Rich spend their money

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