Redefining the classes

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keelba
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Joined: Dec 17 2008
Posts: 55
Redefining the classes

I can envision many scenarios for the immediate future of Americans and most of the rest of the world, from bad to worse to worst case scenarios, none of them would I call a good outcome. But no matter how things do play out, I can pretty much guarantee one thing is certain: the evaporation of the Middle Class.

In America today you are either rich or you are not. The difference is that the rich make money work for them while the rest of us work for money (I’m talking financially here not rich in love, rich in happiness, etc.). It does not matter how great your salary is, if you are working for money you are not rich. So does that mean that if you are not rich you are considered poor? No, because we have broken down the non-rich into further classes of the Middle Class and the poor. The Middle Class represents such a large majority of Americans that we have broken it down further into three subdivisions: Upper-middle, Middle and Lower-middle Classes.

Which class you belong to is not so much a matter of your yearly income but rather your mindset and way of life. The rich, I already explained, make money work for them. Today's poor, on the other hand, do not know how money works. The poor either cannot survive on their own and exist through the support of family, friends, charity or government or else they live a very meager life on the street and call a cardboard box home. Today's poor typically have no debt (other than what they borrow from friends, family and other sources that they say they will someday pay back but we all expect they will not and so their debt is really just another form of charity). A poor person might have a job but since he does not know how money works or how to handle money, his paycheck will typically be gone within days. He cannot live on his own because he does not know how to pay bills. He cannot pay rent. He cannot pay for utilities. He cannot make a budget so he spends what he has when he has it.

So if you’re not rich and you’re not poor you must be in the Middle Class. The Middle Class, however, can be segregated into groups by income levels but the distinctions are relative and arbitrary and, obviously, cost of living varies greatly by geographic regions. We all have our own mindsets of what constitutes the Lower-middle class for our areas. Perhaps we say that if a family’s household income is less than $40,000 we call them Lower-middle class. And if they make more than $100,000 we call them Upper-middle. It does not matter where you draw the lines, the important thing is that you, like most Americans, have gotten some level of education and used that to get a job or go into business for yourself. Whether you have a nice yearly income of $75,000 or a great income of $750,000 you are still Middle Class but, unfortunately, that is going to change.

The process has already begun and it is accelerating. Tens of millions of Americans are unemployed today that were not just a couple of years ago. They may still be living in a relatively nice house and drive a relatively nice car but it is safe to say their standards of living have already begun to decline. And the income to pay for their living is coming from the government through unemployment, social security or welfare checks or food stamps. These individuals may still consider themselves Middle Class but surviving on government handouts actually puts them into a new class of poor. The poor class is growing daily with these individuals, they just haven’t realized it yet. Perhaps soon we will have three different subdivisions of the poor class.

For the rest of us that have managed to keep our jobs and still find ourselves in the Middle Class we are finding out and will have this point continually driven home in the very near future that our once comfortable salaries are not so comfortable anymore. We are finding the cost of gas, energy, food and everything else going up at a phenomenal rate. True, the bubble did burst in the housing market and the price of housing has dropped but it is trying to stabilize and I believe in the near future you will see housing once again go up right along with everything else too.

I have preached about inflation and price increases for a couple of years now yet many people do not believe me. But ask yourself this, “Is your salary worth what it used to be 10, 20 or 30 years ago?” I remember a time in the not-so-far-off past when a salary of $100,000 meant you were very well off, regardless of where you lived in the country. When a very nice house would set you back $150,000, a luxury car such as a Mercedes cost $20,000, a good set of appliances such as a washer/dryer combo would cost $500 or less and a Big Mac, fries and a Coke with tax was less than four bucks. With prices like that, $100,000 would go a long way. Today, I will admit that my household income is slightly over $100,000 but I certainly do not feel rich or even well off. I haven’t seen a raise in over 3 years and do not expect to see one anytime in the near future. Every time I go grocery shopping I notice my total going up. I can tell you that just 5 years ago my wife and I would spend less than $100 every time we shopped. We haven't changed our eating habits but when we went shopping last week and our total was over $250! We shop about 3 to four times per month so our grocery spending has gone from $300-$400 per month to $600-$750 per month. Our costs have doubled in just 5 years! Gas has doubled. Utility bills have gone up dramatically. Everything is significantly more expensive.

Luckily, $100,000 still provides me a nice cushion each month and gives me a nice chunk of discretionary spending but that amount is dwindling. I can only imagine what it must be like for a family with a household income of $50,000. Whereas just a few years ago this family would have made a comfortable living, today I am sure they must budget very carefully. They used to think they were a Middle Class family and now they are realizing that they are Lower-middle Class at best. Soon they will be looking for help from friends, family, charity or the government and they will be entrenching themselves into the class of the poor. The rest of us are going to continue to slip down this slide, as cost of living continues going up at an accelerating rate and incomes struggle to keep up.

There is still time to learn to make money work for you. Your class is not defined by heredity. You can become a part of the rich class. While it is true that investing successfully is much harder today than it was in the recent past, the rewards are much, much larger and the opportunities to make money are greater today than possibly ever throughout history. Know this and believe it and learn to make it happen. Read through past posts on my blog for help and inspiration, read someone else’s blog, read a book or go to a seminar. I don’t care what, just do something. Whether you succeed in the end or not, the fact that you tried will make your short time on this planet so much more meaningful than if you just let yourself slip helplessly into peasanthood. I do realize that it is important to try to prepare and learn to survive for worst case scenarios but that doesn't mean that you shouldn't also try to learn and try to thrive in the future either. Unless the absolute worst happens and armageddon is upon us I believe the rich class will exist. But the further you get from it the harder it will be to become a part of it.

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