The first reason so many people fail with finance is that finance education is not taught at the school, it’s tough at home. Because of this most of the people don’t understand how the system works and actually most of them are wrong!.
Middle class people thinks that buying a house is an investment, when most of the times owning a house is a passive that has taxes and cost money to maintain.
The first thing you must know if the difference between active and passive. We don’t want to bore you and to make things simple here are some definitions:
Not doing anything: If you have money doing anything, you are actually losing value. In the short term it’s easy to not see it, but if you think in the long term you will see how much value the money loses.
Lottery: Chances of winning the lottery is so low that playing it makes no sense! some people call it the tax of the poor or ignorance. Some people can’t see how big is the space of possible outcomes and how small if your probability of winning.
The first thing you must do is to minimize your passives. In order to do it you need to have everything written, to keep track of your income and expenses.
If you draw a wealth distribution of the population you will see what it’s call the power law, in which the rich ones are in the 20% (green) and has a long tail that corresponds to the poor ones (yellow). If you zoom the graph, you will find that the inequality among the superrich is the same as the inequality among the simply rich.THe long tail is in color yellow and can take more than in the current image
When you are trying to move from middle class to a rich one you are trying to break a law, which could be a difficult thing to do. You are trying to break the maths behinds how the systems works. But, don’t worry! people usually move from classes (usually to the poor one, but that’s not the idea).
Let’s see how we could try to do things to break that statistics and improve every day. Have objectives for short term, medium term and long term. When I started at the stock market I always had an objective of how much money I will have for end of the year. Every month I checked how much I have (not every day!) and If saw that it was difficult to reach my end of the year objective, then I tried to change what I was doing. Always have everything written in a text book to keep track of your improvements.
Another interesting thing is to learn or identify if you are a reactive or proactive people.
Try to identify if your beauvoir if reactive or proactive, sometimes will be proactive and sometimes reactive. What makes you reactive or proactive is the total times of being reactive or proactive.