Coming from a very poor background myself (and not being that much richer today), I think I’m able to say that the only difference in my experience between rich and poor is that rich people know a tiny little bit more than poor people about money and as a result can have a different attitude towards it and life in general. Apart from that they could be more or less the same person. Also the poor often have bad attitudes towards the richer, which is guaranteed to keep them poor because they aren’t thinking about it beyond that.
Financial Education is not really taught in schools, so as a result most of us will just follow in our parents footsteps and have similar attitudes to them, rich or poor. You can have a rich attitude without having a penny to your name and it may well lead to a more comfortable life for you in the future.
Let me just add that my definition of rich is how long can you live without working, not how much credit you can get and how much you can load yourself up with debt, because the latter will guarantee that if you lose your job you will be in deep trouble and at the very least it keeps you tied to working a very big percentage of your life. The difference between the two is not obvious, especially when you look across the estate and wish to keep up with the Jones’s new car. The fact that the Jones’s hardly appear to have to do any work to earn the new car might be a clue.
The money blog posts on this blog cover what I wished they had taught me at school, which has taken 30 years for me to learn the hard way, so here goes:
When it comes to thinking about money there are only four things you need to know:
- How much have I got?
- How much do I owe?
- How much is coming in?
- How much is going out?
In other words,
- Assets
- Liabilities
- Income
- Expenditure
Also if there are liabilities to be repaid, it would be useful to know what the interest rate is, that is, how much more you pay than the amount owed to pay the money back and for how long you have to pay it. That’s it.
I might have been told at school about this, but once they started talking about those accountant sounding words I switched off. I really wish I hadn’t. Why? Because if you think about something in those four terms, you can understand anything you need to know about anything because the thinking can be applied to anything and if you think about it you can work out how the world works.
This can be applied in any situation you care to think of:
- A person
- A family
- Buying something, especially bigger purchases like a house or car
- Business or parts of a business
- A council or the governments finances
- A country
Poor people tend to have no assets, all liabilities and only just enough income to cover expenditure (if they are lucky) and have to work hard to make ends meet.
Rich people have assets that give them income, which is greater than the expenditure they have (even though the expenditure might be 10 times that of a poor person), which means they don’t have to work anywhere near as hard.
Middle class people think they have assets but really have liabilities, and work equally as hard as poor people paying off all their loans when really the should be thinking how they can improve their assets so they don’t have to work so hard and eventually, one day retire.
Still with me? Good. I think that not many people realise all of this, and I think its as important to people today as the atom is to a physicist.
I’ll be exploring this subject further in coming months, just search for the tag “money” on this blog.