7 min read · Oct 25, 2019
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Whoa, what happened to Millennial Money 101? Those were more actionable foundational pieces. This is for the meta, the mindset and thought processes for money.
When you look at businesses, there is revenue and there is profit. Revenue is the total amount of money that is brought in and in many cases is large and impressive. Those people on YouTube who make $10,000 a day are making $10,000 in revenue. Profit is revenue minus expenses. So if it cost you $9,900 dollars to make that $10,000 then you end up with only $100 dollars. Crazy right? So to increase profits you can reduce expenses or increase revenue without increasing expenses.
Personal finance is the same way. Your paycheck is your revenue, that is the money that you “made.” Your expenses are mortgage/rent, bills, food, gas, etc. The money you keep at the end is your profit. Over the years, as I have made more and more money, I have taken on more and more expenses. Until recently, I doubt I saved any more money than when I first started working despite having nearly tripled my salary.
Why did this come about? I felt “rich”, but not wealthy. I still worried about covering my expenses and being able to afford my lifestyle. My views of success and wealth were the same as modern society, images of Lamborghinis, mansions, and designer clothes. As my income grew, my toys and hobbies became more expensive. You may think “oh all these expensive things, this is being rich, this will make me happy" but that is far from the truth. I have realized that those things do nothing besides lose value and stroke your ego.
Through my journey, I have found that there are 4 levels of wealth that apply to anyone no matter how much money they have. Where do you fall?
Level 1: Poor
They spend more than they make, they have debt and it keeps growing. A majority of young adults fall into this category, either being in student debt or having outrageous credit card debt due to never being taught how to manage their money. The long they stay at this level, the harder it is to overcome as debt will just continue to increase. This misconception that credit is “free money” plays a major role into it.
Many people who have a windfall of money will fall into this category as well. Whether the money was a result of the lottery, a lawsuit, a sign-on bonus/first job, or a inheritance, there is this presumption that they have all this money that they did not have before and can spend it as they like. They spend extravagantly in a non-sustainable way, until they run out of money and start falling into debt since they have established a habit of spending more than they have.
A final group that falls into this category is those who have lost their jobs or found themselves in an industry that has become obsolete/outsourced, or found that their pay has been substantially reduced. They have a habitual spending that may have been sustainable with their previous salary but without the income they had before it is a matter of time until they burn through their savings and fall into debt unless they level up their finances.
Level 2: Lower Class
The money they make is equal to the money they spend. They aren’t growing their savings but they are still poor. They cant handle any emergency. If they have debt, it is under control in the sense that it isn’t growing. If they have no debt, then they are breaking even in life, and have no growing assets. They can stretch a dollar but in the end there is not much happening. The key to getting here from level 1 is fixing your debt.
The spending of this category tends to be more frivolous, easily spending excessive money on going out, clothing, material things that do not appreciate. Their spending is with enough restraint that they do not go in debt, but it does nothing to help they better yourself.
If they are lucky enough to have had money they may not already be in debt but they are not growing their assets. Any unforeseen costs cut into their savings but they can make ends meet. I feel the majority of people sit in this category as they work towards higher income jobs.
Level 3: Middle Class
They make more money than they spend, they are building their savings and their net worth is increasing. If there is debt, its shrinking, and if there is no debt then money is going into a savings or checking account. They may be able to scrimp and save to millionaire status but they aren’t living the lifestyle they want because they are in this scarcity mindset. They are a broke millionaire and what is the point of that?
They aren’t afraid of being foreclosed or evicted but the mantra of this group is
A penny saved is a penny earned
Overall, their net worth is increasing and their spending is controlled but because of a limited mindset, the potential for growth is limited.
Level 4: Wealthy
The only difference between the people in this level and those in the “Middle Class" is rather than just saving, they are investing. Investing is getting assets that grow your wealth. This can take many forms but the thinking has evolved from saving a penny to investing a penny.
The step up from middle class means spending money from just stuff, to assets and investments. When they stop trading their time for money and leverage their money to make more money, they become wealthy. Whether they invest in the stock market, certificates of deposit, bonds, or real estate, investing gives them the ability to increase their quality of life.
Wealthy does not mean high net worth or high income. Wealthy is when you no longer only work for money, but have money working and growing without your effort. For all intents and purposes, it is having “passive income.”
The two fastest ways to level up are not glorious, they are stupid simple: Spending less and making more. Once you have extra money, and reached the “middle class" you can work on assets to become wealthy.
Spend Smarter
Deliberate spending is spending with a goal in mind. I love driving, I love cars. I dream of one day owning a Lamborghini. A car is a stupid financial investment (99% of the time) and most people would not be able to understand why, especially after talking about being financially responsible. I theoretically could buy one now, but I know right now I have more important things for my money to go to.
However, in order to reach the point in my life where I can buy the car of my dreams I spend and save deliberately now, and invest it into something that will help make me wealthy. I don’t go to bars, nor do I spend large amounts of money on luxury clothes and accessories. I skimp on what I can so I can spend on what I want. This requires a strong self understanding and ability to prioritize your goals and aspirations over immediate and temporary gratification.
Make More
Making more is easier said than done, but it is still not that hard. If you are at a company that doesn’t value you like I was, find a company that does. That’s how I increased my salary by 30%. If you are happy at your company, when was the last time you asked for a raiseorapromotion? If you’ve never asked why not?
However, there is a right way to do this. Look at your job and really see what you have done to increase your value to the company and the work you have done. If it is more than expected, it is time for a raise. Gather your evidence, get opinions from your colleagues, sit down with your boss and make your case. If you do bring the value you think you do, there is no reason they cant work with you to make you happy in your job.
If they don’t see the progress you have made or if you have just coasted till then button down and get ready to worktoshowthemyourvalue. It all starts with communication. Sit down with your boss, tell him you want to do better work or take on more responsibilities to become a better employee. They will provide you with real things that you can do. Set the timeline, 3 months, 6 months or even 1 year and establish that if you can accomplish these milestones you have designed together that your salary will be revisited and your value to the company will be reevaluated. Establish a cadence to check in and document your progress.
As with any limited resource, whether it is time money or attention you have to pick and choose what you do with it. Make your money work for you, at which point you truly start becoming wealthy. Wealth is not about how much you have, but it is more of a mindset and lifestyle. When you can break the scripts established by society and discover your own definition of a rich life, you can start working towards it. You can cut away the parts of your life that do not fall in line with your plan and invest that into achieving the life that you want. Level up your financials and achieve the “Rich Life”
