The Three Stages of Financial Success
It’s not uncommon to hear economists, politicians, and even normal folks to talk about the different economic “classes” in America. The lower class, the middle class, and the upper class.
While dividing people up on the basis of their financial situation is probably not a healthy idea, it’s something that can be useful for looking at how certain behaviors and environments encourage certain financial outcomes.
The Problem With the Lower, Middle, and Upper Classes
Unfortunately, I think dividing people buy poor, middle class, and rich is an incomplete way of looking at things from a financial perspective.
Sure, it might be helpful from an economics perspective, but if we’re trying to figure out how to create a financial plan that allows us to consistently get what we want out of life, it’s an incomplete view.
After all, some of the “richest” people in the world with fast cars, big houses, and luxurious vacations are actually kind of poor — many are up to their eyeballs in debt, and are just one financial bump in the road away from bankruptcy.
How to “Classify” Financial Success
So instead of classifying people by how substantial their income is, let’s look at three different classes of people, not on the basis of how much they make, but on the basis of how well they achieve three different classes of financial goals: security, prosperity, and independence.
Note that it’s possible to achieve any one of these financial goals while not also achieving the others — many people achieve only one, and most people in the world don’t achieve any of the following basic goals.
- Financial Security. The financially secure are those who have enough money and actual possessions to satisfy their basic needs of food, water, clothing, backup power, and shelter. You can also include insurance here. It’s possible for nearly everyone above the poverty line to live a lifestyle that is based on financial security. It requires one to focus on saving money, storing precious metals, etc. I’ll write a more detailed explanation in a few days, so make sure to subscribe if you haven’t already.
- Financial Prosperity. Those who are financially prosperous are those who have more than enough money to live luxuriously. Nice cars, nice two-week vacations, nice house — financial prosperity is all about how much unnecessary stuff you can buy. I’m not saying that to make it sound bad — I’m dead serious, that’s just what it is. There’s nothing wrong with financial prosperity, and many people deserve to have some nice things after working for years.
- Financial Independence. This is probably the most elusive of all financial goals — the ability to be financially free. Free from needing to work every week, free from debt, free from having to live in a specific location. Financial independence isn’t achieved until one has enough of the right kind of wealth to essentially do what they want — this is why they call some people “independently wealthy”.
Who Achieves These Goal Classes?
A very small amount of people achieve the above financial classes. One of the most common financial myths in the world is that people who are “rich” because of large incomes are somehow financially secure and independent — they’re probably neither.
There’s almost a direct correlation between how much money people make and how much money they spend. Frugality — literally the only method for saving money over time — is often replaced with the desire to increase one’s income.
For proof, just read this article at the famous personal finance blog Free Money Finance. In the post, you’ll see that farmers who make 100k are 10x more likely to become a millionaire than doctors with the same income. Why? Because farmers don’t have the same typical consumption habbits as a general rule.
Spend more and you’ll be worth less. It’s that simple. No matter what, this is true.
I’ll be writing more about this in the future, but suffice it to say — you don’t need a rich income to become rich, to become secure, or to become independent. You just need the right financial philosophy and personal finance strategy.
In the next few weeks, I’ll be implementing this article with follow ups, namely explaining how to achieve financial security, how to become independently wealthy with a middle-class income, and how to live prosperously. If you’re not yet, make sure to subscribe.
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