This is my second blog on this topic. My first one covered the big things that take money out of your pocket, but I wanted to update the blog to cover the small things that are becoming all too commonplace and crazy enough, often go unnoticed by many.
If you follow financial news or pay attention to interviews with many of the great success leaders on mainstream media these days, you will hear a common theme in their message. “The middle class is getting wiped out,” they say, or “The rich are getting richer and the poor are getting poorer.” I have heard these sayings for years but just like most “sayings,” I never really took the time to dig a little deeper into what that really means, and why it’s happening.Next stop. Starbucks. I get my usual triple shot of espresso that comes out to $2.91 and without hesitating I leave a $1 tip.
Next stop. The ATM. I needed to grab some cash really quick for a birthday and so as I was pulling out cash, the $4 fee came on the screen. I accepted. I was in a hurry and didn’t have time to drive out of my way to my own bank.ay’s to run errands and do store runs. On this particular day, my first stop was Walmart. At the checkout, as I was about to pay, the computer asked if I wanted to donate to a military charity. I was like “Sure!” And donated $2 to be added on to my bill.The answer of why the middle class was being wiped out was right in front of me, clear as day. I want to share this information with you so that you can be more “aware” and also to make better decisions moving forward. I have listed 9 things that you need to pay attention to, because they are the most dangerous things that take money OUT of your pocket if you are in the middle class. Ironically, the wealthy use most of the same 9 things to become wealthy (I will cover how in the next blog!). These 9 things are neither good or bad, it really just depends on if they are taking money out of your pocket or putting money into your pocket.
1. Taxes
If you are a W2 employee, you get almost zero tax benefits. The money is gone before you even get your check and so there aren’t many options to offset that. It’s scary if you think about it that 30% of your income is gone just right there.
Actually, more like 40%. Remember, you aren’t just taxed on what you earn… you are also taxed on what you spend(Sales tax). Since most states have sales tax around 10%, you can imagine how frustrating it is that just with taxes alone, you almost have to earn $2 just to keep $1. This alone should be all the reason in the world to become an entrepreneur or to start a side hustle just for the tax benefits.. I will leave that for another blog
2. Interest
Most of the middle class have a car that is financed, credit cards that aren’t paid off, a home they pay a monthly mortgage on, and a good ole student loan that seems to ever increase. Guess what, you are going to pay interest on all of that. Even if you have the best of credit, interest rates are high for credit cards, especially if you carry a decent balance. Wanna hear something crazy? If you buy a $300,000 house with a 5% interest rate on a standard 30 year loan, by the time you pay the loan off, you will have paid about $600,000!!! Why do you think banks LOVE to lend money! Let’s pretend another 5-10% of your income is going to interest. Are you starting to see? Just with the first 2, about 50% of your income is gone as a middle class citizen with taxes and interest, and we still have 6 more.
3. Debt
There is good debt and bad debt. Most of the middle class has bad debt. Bad debt is debt used to buy liabilities or things that are not making you money. Good debt is what entrepreneurs use to buy assets or things that make them money. The reason debt is so dangerous is not that it costs you money this second, but debt kills opportunities for you to invest or to take advantage of opportunities when they come. Debt traps you into always playing defense with your finances instead of offense. Think of it like having a heavy ball and chain constantly weighing you down. Having debt also puts you as more of a liability in the eyes of lenders and financial institutions and so they charge much higher interest rates on anything you want to purchase. It is so important that you pay attention to this because if you are in a lot of debt, you need to find a way to fix it. I am specifically talking about bad debt.
ALWAYS REMEMBER! DEBT=DEPENDENCY, AND NO DEBT=FREEDOM
4. Inflation
This is a silent killer. Prices usually tend to go up much faster than income for the middle class. You go to the store and milk is 10 cents more per gallon, and meat is a dollar more per pound. Its so small that most don’t even realize, although you might have a feeling that your total bill is getting higher. Inflation affects everything you buy and almost always goes up over time. This sucks because it costs more and more to buy the same things over time and your money purchases less and less. This is another reason it’s important to own assets because inflation helps you. If you own rental properties, you can increase your rents over time and make more money as inflation rises. With my daycare, we raise our rates annually to account for inflation.
5. Tipping
I am a huge believer in tipping well, ESPECIALLY for exceptional service. Today, however, things are getting ridiculous. Back in the day, I only remember tipping occasionally, such as a waiter at a sit-down restaurant, the pizza guy, and the valet. Now, everyone expects you to tip for everything! More and more places are instituting tipping every day. Places that I had never tipped before like fast food restaurants are now implementing systems for it in their computers. This adds up. With technology making life more convenient, you are also being put in far more situations where you are expected to tip such as your Uber, Lyft, Door Dash, etc. Pay attention!
6. Charity
I kind of covered this earlier and again, I am not against these things. I am just stating this to bring awareness to “how often” you are spending on these things. I personally like to choose the causes that I donate to, but every day it seems more and more charities are popping up everywhere and in every business asking you to give money, round up your transaction, or drop your change in some bucket. Its overwhelming and can really eat your bottom line.
7. Subscriptions
This is where you’ll really get killed if you aren’t careful. Everything is going to subscriptions because there is psychology in it. Companies are changing their strategies to a subscription model to get a little bit out of you over and over vs. one large transaction. Every company and everyone who sells is either going this route or trying to figure out how to. It’s not wrong for them to do this but you must be aware of it. Subscriptions are great for the business because it is predictable revenue that makes their balance sheet look great. In the past, it was only things like cable, electric, internet, and maybe the gym. Everything else you shopped for when you needed it. Now with everything you buy, someone is trying to make it a subscription to have that steady income.
Clothes, razors, individual tv channels, food, Netflix, clothes, meal kits, pet supplies, etc… just look at your facebook feed and scroll down and see how many subscription ads you see.. the charges are small but when added up, they are deadly. BE ULTRA CAREFUL WITH THIS ONE
8. Fees
This one also can be annoying and just eat your income. Tolls, late fees, cancellation fees, rescheduling fees, insufficient funds fees, deposits, application fees, fees to use a credit card to pay a bill, merchant service fees are all things that just take money out of your pocket. Don’t think that little fee is just “NO BIG DEAL.”
9. Special Occasions
This is another way the rich have figured out a way to get richer while crushing the middle class. Again, you can’t blame them because we all have the same opportunity but you must pay attention. Have you noticed that with the media and retailers that all of the most important holidays are becoming more about buying and spending and less about tradition and quality time? When I was a kid, we made a big deal about Christmas, and every other holiday, we just spent time together. Now, it’s like every holiday demands that you “go all out” and buy a bunch of crap that you don’t need and the stores are creating more and more useless stuff that they want you to buy to celebrate “properly.” In a typical year now, you are expected to spend like crazy for Christmas, Halloween, Birthdays, Valentines Day, Easter, New Years, Weddings, Baby showers, bachelor and bachelorette parties, St. Patricks Day, Fourth of July, Thanksgiving, Memorial Day, and probably a lot more that I didn’t even mention. Don’t fall into the hype. Holiday’s are about remembrance, celebration, quality time, and meaningful relationships, not draining your bank account to look cool to others. If you want to spend $30,000 to have a better Christmas light setup than your neighbor, more power to you, but that money could be deployed to more meaningful things in my opinion.
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Taxes: If you are a W2 employee, you get almost zero tax benefits. The money is gone before you even get your check and so there aren’t many options to offset that. It’s scary if you think about it that 30% of your income is gone just right there.
Actually, more like 40%. Remember, you aren’t just taxed on what you earn… you are also taxed on what you spend(Sales tax). Since most states have sales tax around 10%, you can imagine how frustrating it is that just with taxes alone, you almost have to earn $2 just to keep $1. This alone should be all the reason in the world to become an entrepreneur or to start a side hustle just for the tax benefits.. I will leave that for another blog - Interest: Most of the middle class have a car that is financed, credit cards that aren’t paid off, a home they pay a monthly mortgage on, and a good ole student loan that seems to ever increase. Guess what, you are going to pay interest on all of that. Even if you have the best of credit, interest rates are high for credit cards, especially if you carry a decent balance. Wanna hear something crazy? If you buy a $300,000 house with a 5% interest rate on a standard 30 year loan, by the time you pay the loan off, you will have paid about $600,000!!! Why do you think banks LOVE to lend money! Let’s pretend another 5-10% of your income is going to interest. Are you starting to see? Just with the first 2, about 50% of your income is gone as a middle class citizen with taxes and interest, and we still have 6 more.
-
Debt: There is good debt and bad debt. Most of the middle class has bad debt. Bad debt is debt used to buy liabilities or things that are not making you money. Good debt is what entrepreneurs use to buy assets or things that make them money. The reason debt is so dangerous is not that it costs you money this second, but debt kills opportunities for you to invest or to take advantage of opportunities when they come. Debt traps you into always playing defense with your finances instead of offense. Think of it like having a heavy ball and chain constantly weighing you down. Having debt also puts you as more of a liability in the eyes of lenders and financial institutions and so they charge much higher interest rates on anything you want to purchase. It is so important that you pay attention to this because if you are in a lot of debt, you need to find a way to fix it. I am specifically talking about bad debt.
ALWAYS REMEMBER! DEBT=DEPENDENCY, AND NO DEBT=FREEDOM - Inflation: This is a silent killer. Prices usually tend to go up much faster than income for the middle class. You go to the store and milk is 10 cents more per gallon, and meat is a dollar more per pound. Its so small that most don’t even realize, although you might have a feeling that your total bill is getting higher. Inflation affects everything you buy and almost always goes up over time. This sucks because it costs more and more to buy the same things over time and your money purchases less and less. This is another reason it’s important to own assets because inflation helps you. If you own rental properties, you can increase your rents over time and make more money as inflation rises. With my daycare, we raise our rates annually to account for inflation.
- Tipping: I am a huge believer in tipping well, ESPECIALLY for exceptional service. Today, however, things are getting ridiculous. Back in the day, I only remember tipping occasionally, such as a waiter at a sit-down restaurant, the pizza guy, and the valet. Now, everyone expects you to tip for everything! More and more places are instituting tipping every day. Places that I had never tipped before like fast food restaurants are now implementing systems for it in their computers. This adds up. With technology making life more convenient, you are also being put in far more situations where you are expected to tip such as your Uber, Lyft, Door Dash, etc. Pay attention!
- Charity: I kind of covered this earlier and again, I am not against these things. I am just stating this to bring awareness to “how often” you are spending on these things. I personally like to choose the causes that I donate to, but every day it seems more and more charities are popping up everywhere and in every business asking you to give money, round up your transaction, or drop your change in some bucket. Its overwhelming and can really eat your bottom line.
-
Subscriptions: This is where you’ll really get killed if you aren’t careful. Everything is going to subscriptions because there is psychology in it. Companies are changing their strategies to a subscription model to get a little bit out of you over and over vs. one large transaction. Every company and everyone who sells is either going this route or trying to figure out how to. It’s not wrong for them to do this but you must be aware of it. Subscriptions are great for the business because it is predictable revenue that makes their balance sheet look great.
In the past, it was only things like cable, electric, internet, and maybe the gym. Everything else you shopped for when you needed it. Now with everything you buy, someone is trying to make it a subscription to have that steady income.
Clothes, razors, individual tv channels, food, Netflix, clothes, meal kits, pet supplies, etc… just look at your facebook feed and scroll down and see how many subscription ads you see.. the charges are small but when added up, they are deadly. BE ULTRA CAREFUL WITH THIS ONE - Fees: This one also can be annoying and just eat your income. Tolls, late fees, cancellation fees, rescheduling fees, insufficient funds fees, deposits, application fees, fees to use a credit card to pay a bill, merchant service fees are all things that just take money out of your pocket. Don’t think that little fee is just “NO BIG DEAL.”
- Special Occasions: This is another way the rich have figured out a way to get richer while crushing the middle class. Again, you can’t blame them because we all have the same opportunity but you must pay attention. Have you noticed that with the media and retailers that all of the most important holidays are becoming more about buying and spending and less about tradition and quality time? When I was a kid, we made a big deal about Christmas, and every other holiday, we just spent time together. Now, it’s like every holiday demands that you “go all out” and buy a bunch of crap that you don’t need and the stores are creating more and more useless stuff that they want you to buy to celebrate “properly.” In a typical year now, you are expected to spend like crazy for Christmas, Halloween, Birthdays, Valentines Day, Easter, New Years, Weddings, Baby showers, bachelor and bachelorette parties, St. Patricks Day, Fourth of July, Thanksgiving, Memorial Day, and probably a lot more that I didn’t even mention. Don’t fall into the hype. Holiday’s are about remembrance, celebration, quality time, and meaningful relationships, not draining your bank account to look cool to others. If you want to spend $30,000 to have a better Christmas light setup than your neighbor, more power to you, but that money could be deployed to more meaningful things in my opinion.