"It is difficult to get a man to understand something when his salary depends on his not understanding it." - Upton Sinclair
RAT RACE: How to escape 5 middle-class money mindsets to build wealth
“It is difficult to get a man to understand something when his salary depends on his not understanding it.” — Upton Sinclair
Above quote is one of my favourites when I read it first time on the internet. It touches my heart because of most common phenomenon we all are experiencing in our life i.e. Rat Race.
So how to escape this rat race. It’s a well-known fact that many middle-class individuals are trapped in a financial struggle, by working hard just to pay their bills. But why it happens?
“There are many broke people driving new Mercedes and wealthy people driving used Toyotas. Possessions are not a sign of wealth. Real wealth is invisible.” — Kenny Accent Investing
Let’s explore 5 common money habits among the middle class that hinders their wealth creation and how to escape this:
What is the Rat Race?
The “rat race” refers to an endless and self-defeating cycle in which individuals are constantly striving to make ends meet. This phrase draws a parallel between humans and rats, mindlessly pursuing a reward, like cheese.
This cycle often involves working long hours, living paycheck to paycheck, and struggling to break free from financial mediocrity.
“You’re not going to get rich renting out your time. You must own equity, a piece of a business to gain your financial freedom.” — Naval Ravikant
Because people busy in the rat race tend to prioritize short-term gratification, such as buying things that don’t appreciate in value and accumulate consumer loan, instead of implementing long-term wealth-building strategies like saving, investing, and acquiring assets that generate cash flow.
To escape the rat race, one must shift their mindset, adopt new financial habits, and focus on financial education.
By learning how money works, acquire or build assets that generate cash flows ultimately make your passive income exceeds your living expenses. At that point, you are no longer dependent on a job for survival.
Middle-class money habits that block wealth:
Neglecting saving and investing
Lack of cash generating assets
Zero business ownership
1. Mindless spending
One of the primary habits of middle class is excessive or mindless spending. They often falls into the trap of living beyond their means, relying on their salaries for immediate expenses instead of acquiring cash generating assets.
Although this lifestyle may initially seem comfortable, it ultimately hampers their ability to accumulate wealth.
“DON’T BE A SHEEP Society has fooled you with how you view the world. You’ve only been taught to be a consumer and spend money. The real way to financial freedom is to use money to make more money.” — Gary Vaynerchuk
To break from rat race, it’s crucial to identify and eliminate unnecessary expenses and embrace a lifestyle that aligns with your financial means.
If you consistently spend more than you earn, you will perpetually struggle financially and remain trapped in your current economic circumstances.
2. Consumer loans
Off course, consumer loans the key to financial disaster. Many individuals from the middle class rely on credit cards and loans to sustain their lifestyles.
Although, loans can be useful in specific situations, but they poses a significant threat to building wealth.
Paying high-interest rates on credit cards and loans for non-essential items like vacations, cars, and gadgets can severely hinder your ability to save and invest.
“Rather go to bed without dinner than to rise in debt.” — Benjamin Franklin
To liberate yourself from this trap, make a firm commitment to swiftly pay off high-interest debts and avoid taking on new consumer loan for items that won’t contribute to your financial future.
The wealthy strategically use debt to accumulate wealth through business and real estate loans which generate cash flows.
In contrast, the middle class often accumulates debt to purchase depreciating consumer assets that lose value over time.
3. Neglecting saving and investing
Saving and investing are fundamental to building wealth, yet many individuals in the middle class tend to overlook these crucial habits.
Instead of making saving and investing a priority, they spend their income first and save whatever is left, if anything.
Create a budget that allocates a specific percentage of your income towards savings and investments, and stick to it diligently.
Remember to pay yourself first and invest in your financial education to make informed decisions about where to put your money.
“Your time to reach financial independence depends on only one factor: your savings rate as a percentage of your take-home pay.” — Pete Adeney
4. Lack of cash generating assets
Acquiring cash-flowing assets is vital for transitioning out of the middle class.
Cash-flowing assets generate passive income, putting money into your pocket without requiring significant effort. Unfortunately, the middle class often lacks these assets and relies solely on their earned income from jobs.
To break free from this pattern, focus on acquiring cash-flowing assets such as real estate, dividend stocks, or bonds. Rental properties can also serve as cash-flowing assets.
“Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.” — Robert Kiyosaki
Now digital assets like ebooks, eCourses, YouTube channels, and websites can also generate cash flow. These investments of capital and time can help create multiple income streams, ultimately leading to financial freedom.
5. Zero business ownership
The final hurdle to wealth accumulation is the absence of business ownership.
Many individuals in the middle class work for someone else, trading their time for a paycheck. While having a job is not inherently negative, it is crucial to recognize the limitations of relying solely on earned income.
Owning a business offers numerous advantages, including tax benefits, control over your income, and the potential for passive income.
Consider starting a side hustle or exploring entrepreneurship to diversify your income and unlock additional opportunities for building wealth.
Businesses prioritize paying their bills first and then taxes on their profits, whereas the middle class pays income taxes first and then their bills.
Businesses provide leverage through assets, employees, and the creation of high-value products or services. They can function as cash-flowing assets and can be sold for gains, further contributing to wealth creation.
“Salary is for expenses. Equity is wealth.” — Vala Afshar
As we conclude, let’s summarize the key takeaways from this article:
Control your spending habits and prioritize acquiring assets over liabilities.
Eliminate high-interest consumer loan and avoid new loans that won’t contribute to your financial future.
Make saving and investing a priority by allocating a specific portion of your income to these activities.
Look for cash-flowing assets to create multiple income streams.
Accept entrepreneurship and business ownership as opportunities to diversify your income and experience the perks of being your own boss.
By addressing these money habits that hinder wealth creation, you can change your financial mindset and take charge of your financial future.
Escaping the rat race is achievable, but it requires intention, discipline, and a commitment to continuous learning and growth.
Thanks for reading and if you really like this article, please share it with your social circle.