Differences Between The Middle Class And The Wealthy – Episode 267

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[00:04] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler. Another episode of the Prosperity Podcast. This is a conversation that almost everyone is thinking about, but almost everyone is too scared to ask. Sure, you’ll type it into Google, but you’re too scared to ask a financial advisor or someone that you trust, and that is, how do you go from middle class to wealth? And there are specific things that you can do that work throughout the world. And Kim Butler is going to be sharing some of those strategies with us. Kim, let’s take it away. Wonderful, Spencer. Yes, how fun to talk about.

[00:58] So first of all, I think some quick definitions are helpful. So middle class and then, quote, wealthy are initially mindsets. And so that’s super cool, because everybody can be wealthy mentally and with their being and with their psychology, if you will. And so that’s also very, very important. The first principle of prosperity is to think from a prosperous mindset. And you could say that it’s thinking from a wealthy person’s mindset. And a great example is a wealthy person goes out on a Saturday. And I mean this completely seriously. This is not just like, oh, doesn’t this sound cool? A wealthy person goes out and literally looks to give. What value can they provide? What thing can they learn?

[01:51] What aspect can they improve upon? That’s truly how a wealthy person goes out into the world. A quote middle class person, so a middle class thought process, if you will, often goes out to get. What can I buy today? What can I get? What can I receive? And absolutely, receiving is happening at the wealthy person’s standpoint, too. It’s just a starting point, a question about your starting point. And so which is it? So that’s such a great thing because any of us can be wealthy mentally and emotionally and psychologically and in our thinking and then consequently in our actions. And isn’t that an awesome thing? Because it starts there and we can have the most impact there. That’s so true. And the great thing about this is it’s universal, works throughout the world,

[02:51] wherever you live, wherever you are, if you happen to be barely getting by or if you already are wealthy. So that’s wonderful. What’s what else? Well, it’s such a great beginning to then set you up for what I think is a really critical second step, which is, frankly, just to pay a little bit more attention to your finances. Wealthy people literally consider that they have two businesses, they have their own business, whatever it is, and it is often a literal business, but you could say it’s your own job. And then they also have the business of handling their family’s finances and they pay attention to it and they spend time learning about it and they put focus on it. And so, again, this is an awesome thing that anybody can do, even if all

[03:43] you have right now is just a little bit of money to work with. How you spend your time is completely controlled by you. And so you have to make a choice. Do you want to spend time on a Tuesday night watching the latest show on TV? Or do you want to spend time on a Tuesday night doing a little bit of research, learning a little bit about finances, delving into an area that you don’t know much about, etc., etc.? And again, that’s something that you can control 100 percent. But I guarantee you, strong word, I guarantee you that the wealthy spend occasional Tuesday, Wednesday and Thursday nights. Notice I didn’t pick Friday night, you know, fun is allowed. But the wealthy spend some time paying attention to their own personal

[04:32] finances and learning about them. And so that is something that’s so critical to have happen. I was actually just talking with a family recently. I had asked them to read a simple little book called Live Your Life Insurance. It’s maybe an hour, two hours at the most worth of work. And I’d asked them like a month ago and they hadn’t done it. Oh, we don’t have time. Well, that’s interesting. You know, yeah, you had time. You just chose to use it differently. So that’s a big distinction and what I consider step number two. Wonderful distinction there. And I think, you know, with as far as time goes, we can look and be paying attention, putting our time into the most important things. But one of the things on my list came from a conversation of last week,

[05:18] talking with another fellow business owner when he said something that I’ve heard time and time again, but it finally cemented in my brain. And he said the average millionaire has seven sources of income. And I thought, well, I hear this from Kim all the time and from other friends that I know. And I looked at my sources of income and it just clicked. And I said, that is so true. The average millionaire has seven sources of income. And now that, you know, have you heard of that phrase as well, Kim? I have. And it’s so accurate. And this is where the fun starts from the actions that somebody can take. So the first two steps that we talked about were a little bit more in the mental realm. You know, some of it is learning or whatnot.

[06:05] And you could call that actionable as well. But one of the things that I recommend people do is start to create investment income. And frankly, most people do not know how to do that. Typically, when people start to learn about investing, they’re learning about what we would call growth investing. In other words, I have this hundred thousand dollar IRA. I need to make it grow because 30 years from now, I want to use it. And so that’s great. Obviously, that’s something that needs to be learned. People, of course, are talked into 401k plans right away. And that’s a growth oriented environment. And yet, as a society, most people do not know how to create income from their investments. I’m talking monthly paychecks.

[06:47] And so even at a very initial level, twenty five or fifty thousand dollars, we recommend people use some of that money to help them create monthly income, even though they don’t necessarily need it. They need the practice so that when the time comes when they’re 59 and a half and they have, for example, that big 401k plan to roll over, they’re not having to at that point in time learn a skill called how do you create investment income? And so the third step for me is absolutely to have people practice. And I mean it literally creating investment income. And so maybe to you, that means going out and buying an individual real estate deal, or maybe to you, that means lending money for somebody else to go use their expertise

[07:37] and buy an individual real estate deal. And we have two or three different ways that we can help clients do that. And it’s so important that people at early levels of the game learn how to create investment income and do that where that income is going to be consistent on a monthly basis. And again, it’s not going to be enough to replace their job. That’s not the goal. The goal, as you said, it is to just get a second or maybe third source of income for their family. I love the word game because truly it is a game. When you’re not doing it for your sole income, meaning what you have to do to be able to pay all the bills, that a lot of time we can use the word work. And you may enjoy your work, but it still is work.

[08:25] But when you create the additional income to me, at least it becomes a game because I can look at it and say, OK, well, it’s it’s like taking a lever and pulling on a lever and saying, oh, OK, I was able to tweak this. And now I bring in this income or I put some money here and watch it coming back. Do you look at it the same way as a game? I do. And I think there’s a couple of reasons why. Number one, games imply fun. Games imply scorekeeping, which is so important in the personal financial realm. And whether you’re keeping track of debt being paid down or money growing or the amount of passive income that you do collect on a monthly basis or progress that you’re making on, you know, some other thing

[09:11] that you’ve set, like, you know, somebody told me the other day, oh, I want to have as many life insurance policies as you do. OK, great. You know, are you keeping track? Are you keeping score as to where you are and where you want to be? And then the progress from A to B. And so all of those types of things point towards the word game and ideas behind game and gamification. Yeah. So we’ve now covered the mental and then the first steps to taking action. One of the steps that we we didn’t cover, but is actually necessary to creating that income is to pay yourself first. And that’s from a famous book that almost every entrepreneur has read. Do you want to dive into that principle for a moment?

[09:55] Absolutely. So the concept of paying yourself first, are you referring to a Napoleon Hill book or the richest man in Babylon? Well, you know, it’s funny they’re both related. I think Babylon was written before Napoleon Hill or was it? Was it Chicken Egg? I can’t remember which one. I can’t either. So anyway, either of those two books absolutely refer to that concept. And it is absolutely something that the wealthy do. And it’s one of the back to Chicken and the Egg. Are the wealthy wealthy because they do pay themselves first or because they pay themselves first, are they wealthy? And it works both ways, absolutely, without a doubt. And so I find that the easiest way to pay myself first is to have a life insurance premium that forces me to do that.

[10:45] And of course, you could say that contributing to a 401k, hopefully only up to the match level, is an aspect of that as well. And yet nobody ever is going to say that their 401k made them wealthy. And so it’s something that contributes to wealth, but it certainly doesn’t fit any of the other seven principles of prosperity in terms of control and ability to multiply with it. Whereas dollars that you put in the pay yourself first category towards whole life insurance that build cash value do contribute to the seven principles of prosperity and your ability to control them and do more things with them. But I’m really glad you brought that up, because if we are counting our things here, we could say that’s step number four, just because that’s where we are.

[11:26] But paying yourself first is absolutely positively something that you want to get into a habit of. And then, of course, you want to work towards increasing the amount or the percentage, I should say, which then will increase the amount of the amount of income that you are paying yourself first with. So as we are starting to wrap up, there’s one other piece. And I don’t know if we’re going to put this as the principle, you know, a principle or section number four, or if this goes later down the line. But one of the things that wealthy people do that is different than the middle class is they don’t take risks. And that’s one of the things that Kim always talks about. And let’s define risk. Is that something you can do to define risk?

[12:16] And explain why they don’t take risks. Yeah. So to me, taking risk with your money is putting your money at risk, i.e. putting it in a place where it could potentially lose principle. And I’ve stated publicly numerous times, my risk tolerance is zero. Like, I have no interest in losing principle. Doesn’t mean I haven’t because I’m not perfect either. I’m a human being like everybody else is in this category and in all categories. But the mentality, I think, is really different. And what I find happens a lot of times when people don’t have very much money, frankly, they don’t treat it very well. Like they’re willing to take risks because they kind of feel like they don’t have that much to lose because they don’t have that much.

[12:58] But that’s not a good point to start from. So in my opinion, you want to go out into the marketplace and find out if there’s a way that you can create investment income, like we’ve spoken, or potentially create growth without taking on risk, which means without putting your money in a place where it can lose principle in all the typical investment realm, which is more commonly your stock, bond and mutual fund environments absolutely have made losing a principle OK and normal. And I really want to call that to the carpet. I want to say, no, it’s not normal. It’s not OK. It’s not something that you should be accepting of. And if you can instead have a zero risk tolerance and go forward with a goal,

[13:48] again, not that it’s going to happen all the time, but the goal that you could create investment income and or get your money to grow without losing a principle, then I think you’re going to get a lot better results. And so if we call that the fifth item of the things that we’ve been talking about, that would be great. And then as we are wrapping up, I really want to slip a sixth one in there. And this is for the people that definitely feel like they’re at the upper end of that middle class realm and like, oh, you know, what do I really need to do to take it to the next level? And it’s a specific definition that I want to introduce that I did not come up with. It’s a SEC definition, and it’s called an accredited investor.

[14:32] And it either means that you have a million dollars of investible assets, which means that does not include the home equity that you may or may not have, nor does it include, you know, something that’s locked up and not investible. So, again, the definition of accredited is million dollars of investible assets or not and or an income of either two hundred thousand if you’re single or three hundred thousand if you’re married. And there is going to be more and more opportunities out there that are made available because of the jobs act. They have made them more accessible to people that are known as accredited investors, and there’s a lot of people that have never even heard that word or that definition.

[15:18] And so that should be your next goal. If you’re not accredited yet, you want to be working towards being accredited. Again, nine dollars of investible assets or two to three hundred thousand of income, depending on if you’re married. Now, while we’re on that subject, I do want to back off a notch and say that there’s actually another level, which is kind of interesting. It’s called a suitable investor, a suitable investor, and it is two hundred fifty thousand dollars of investible net worth. So all is not lost if you’re not an accredited investor yet. You just have more opportunities available to you. And yet, if you’re only suitable, quote unquote, two hundred fifty thousand or above, then you have some opportunities available to you.

[16:02] So those are some things out in the fifth and sixth, maybe seventh. And I forget where our numbers are realms that are making up the difference between the middle class and the wealthy. Wonderful, wonderful. So I think our listeners today were able to walk away with some things that they can do mentally, regardless of wherever they live. And now they have some actionable things they can do as far as creating additional income. They can start paying themselves first and they can work towards becoming those suitable or those what they call the accredited investors. And that is the next steps. And obviously, don’t ever take risk with your capital. Our listeners can ask you specific questions. What’s the best way to do that, Kim?

[16:48] Hello at partners. The number four prosperity dot com is a special email that we have dedicated to our podcast listeners. And I am watching it closely. Happy to have questions come in. Sometimes I’ll answer on email and sometimes we’ll answer on the podcast. Again, that’s hello at partners. Number four prosperity dot com. Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you. Visit us at partners for prosperity dot com. If you liked this episode, make sure you subscribe and leave a review.