Don’t fall into the middle-class trap

From Mark Ford, Founder, Palm Beach Letter:

I thought I knew what “middle class” meant.

I took it to mean most of working America: plumbers, electricians, teachers, police officers, nurses, lawyers, etc.

And had you asked me how many Americans made up the middle class, I’d have guessed it was at least 50%.

But according to Charles Hugh Smith, who authors the excellent Of Two Minds blog, that’s not so…

The actual number of middle-class Americans has dwindled over the years. Today, he says, “middle class” describes only 10% of U.S. households – the 10% just below the richest 10%. Per Smith…

The “bottom 80%” are lacking essential attributes of a middle-class lifestyle that was once affordable on a much more modest income.

Outside of income, he includes these criteria in his definition of middle class: good health insurance, 25%-50% equity in a home, the ability to save at least 6% of your income, lots of money in a 401(k) or IRA, the ability to cover your debt and expenses if one of your household’s primary wage earners loses his or her job, reliable vehicles for each wage earner, no reliance on government assistance, “generational wealth” (in the form of heirlooms, precious metals, etc.) that you can hand down, the ability to invest in kids (education, clubs, training, etc.), and leisure time for physical, spiritual, and mental fitness.

Do you meet all of these criteria?

Don’t feel bad if the answer is no. I doubt 50% of the population could ever pass his tough test.

But the general point – that the middle class is smaller than it was during my childhood – rings true.

According to think tank Pew Research Center, net worth has risen only in the upper 10% of the population for the past 40 years.

Median wages, meanwhile, have been flat. And even with a more liberal definition of middle class, households that meet that criteria have dropped by 11%.

This has happened for many reasons. Much of it has to do with an unhealthy alliance between big government and Wall Street.

What can you do about it?

My view is that there is very little you can do that will make a significant difference. Yes, you can sign petitions and write letters and vote, but the relationship between all that sort of “political” activity and the economy is small and almost always long term.

If you want to make a significant, shorter-term difference for yourself and your family, I suggest the following:

1. Spend the lion’s share of your time being productive, not reading or writing or talking about the state of the economy.

Stop complaining. Turn off the news. Unplug from social media. You and you alone are responsible for the health and state of your finances, so quit messing around. Now is the time for you to spend your “leisure hours” doing something productive.

2. Earn more money.

If you are an employee, you need to become a better, more valuable one. If you are a plumber, lawyer, electrician, doctor, etc., you need to acquire more customers and learn how to double or triple your hourly rate. If you are a business owner, you have to grow your business. And while you do that…

3. Stop trying to be a great stock investor.

Be a wealth builder instead.

Growing wealth is about much more than buying and selling stocks. It’s about increasing your net worth by investing in income-producing assets. It’s about creating secondary and tertiary cash streams, understanding how to diversify your investments, and avoiding wealth-siphoning expenses. Increasing your net worth requires much more than good stock picks.

Figure out what those requirements are, and get to work.

Regards,

Mark Ford

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