Believe it or not, middle class people are bigger
spendthrifts than their wealthy counterparts, spending more
for cars, clothes boats and other big ticket items than the
rich. Don't believe it? Well, it's true, according to
Thomas J. Stanley, Ph. D. and William D. Danko, Ph. D., who
wrote the surprising 1996 book "The Millionaire Next Door."
Danko and Stanley studied the spending habits of
millionaires and found that they're usually exceedingly
frugal, buying off-the-rack clothes, driving used cars and
looking for deals wherever they can find them.
According to these authors, rich people are big on saving,
routinely socking away about 20 percent of their money into
investments and savings accounts. Very few drive
current-model cars, and almost never lease them (unless
it's done through their company). Most also have what Danko
and Stanley call a "go to hell fund," enough accumulated
wealth to last them for 10 to 15 years should they leave
their jobs - jobs which most of them work at an average of
45 to 55 hours a week. Most millionaires buy their suits
from mid-range department stores, spending more money on
their children's education than on the trappings of wealth.
But if you look at middle class people, you'll often see
what's termed "conspicuous consumption" at work - a
brand-new, leased SUV in the driveway, designer labels
hanging in the closet, and credit-card debt up the wazoo,
because the middle class income is stretched to its limit
to pay for these luxuries. The difference between wealthy
and middle class is one of income certainly, but often the
biggest divide comes when you examine their net worth. The
wealthy become rich - and stay rich - by living well below
their means and investing their money for the future. A
middle-class family, on the other hand, often undermines
its own potential for wealth by overspending compared to
what they earn, because they're concerned with measuring up
to their neighbors in terms of how big their house is, what
sort of car they drive and the price tag on the clothes
they wear.
One of the biggest financial challenges for those on the
less privileged end of the spectrum is escaping from lower
class income and spending, and elevating themselves to
middle class. When you're fighting to keep your children
fed and to pay the rent on time, it's difficult to conceive
of how you can possibly invest any of your much-needed
income for the future. Even the most frugal of
working-class families find their resources stretched to
the limit - everything that they need and buy costs the
same as it does for people with higher incomes, so
everything from gasoline to food to home appliances takes a
much larger chunk, percentage-wise, out of their net income.
Can spending habits among lower income households be
improved, though? Absolutely. As with middle-income people,
there's often a belief that they "need" certain items to
fit in as average Americans - so they buy cars at high
interest rates, video game systems for the kids, microwave
ovens and brand name sneakers, leaving no money left over
for savings.
The biggest difference between the wealthy and the
not-wealthy is, it turns out, how tight they are with their
money - the rich are better savers. Income plays a part, of
course, but if you want to live a more comfortable life in
the future, cutting back on your expenses today can go a
long way towards making that dream a reality. Live within
your income, reduce your credit debt, and spend wisely.
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