Few things are more expensive than poverty itself. You can’t afford to be poor.
This is one of my main motivators for growing my bank account as fast as possible. One of the reasons I’m trying to outrun a middle-class lifestyle is because I can’t afford to stay there.
I can’t afford to be poor.
It’s too expensive. Wealth inequality is a growing. It’s a terrifying problem and I don’t want to be on the losing end of the deal. I’d rather we live in a more equal society when it comes to wealth distribution, but so long as we don’t, my singular goal is to get as far away from the bottom as possible.
No matter how my financial situation improves, part of me is worried I’m fighting a losing battle. I’m working hard at setting myself up for wealth, but it’s not entirely a matter of bootstrapping. The odds are stacked against me (and you). My greatest defenses against the challenges are living lean in one of the most robust economies on earth, but I’ll admit I’m mostly motivated by fear.
I’m terrified of being poor.
It’s too hard to be poor. Everything is too expensive if you’re below the median.
And I don’t mean that when you’re poor you can’t afford to buy certain things. That’s true, but what’s really the matter is many things cost more for poor people to buy than the rich. If you find that statement confusing, read on.
Why You Can’t Afford To Be Poor
Someone that comes from a family with less money has to take out loans to finance things like their post-secondary education or a car. A rich person will just pay for those things outright. As a result, the person with less money has paid a premium on their purchases in the form of interest. The wealthy person did not have to pay this additional cost.
This is more than a small unfair advantage. The average person enters the workforce saddled with debt, which leaves them with less disposable income to invest. It robs them of years of returns and compounding that their money could be earning. The rich person not only avoided paying interest on the cost of their education or other major purchase, they don’t have to direct their future income to debt repayment. They can instead afford to invest and earn a return on their money.
This isn’t just for cars and houses, this is for everything. While it’s true that people with large incomes can still bankrupt themselves with reckless spending, it takes a lot more effort than someone that’s earning only $20,000. For a low earner, everything costs more because it’s such a substantial portion of their income. Everything from clothes to food takes a bite out of their take-home pay, leaving less and less to nothing left over for saving and investing.
Mind the gap
Mind the “gap” between what you earn and what you spend. Maximizing your income is key to financial success. Being able to live on $20,000 per year is awesome. But if you’re earning $21,000, you’re still stuck. If you’re living on $20,000 per year but your income is $70,000, you’re in a completely different position.
Living paycheque to paycheque also leaves you infinitely more vulnerable to financial catastrophe than someone who has more breathing room in their budget. For someone relying on 90-100% of their income to meet their financial obligations, it only takes one missed paycheque to put their credit, or even their home, at risk. Someone with a larger income definitely has more to lose if that income disappears, but if they haven’t financed their lifestyle with credit and have wisely built up savings behind them, they’ll be able to weather worse storms.
My number one financial goal is to get my investments to the point that they produce enough passive income to pay all my bills.
For my myself, this means I need to have at least $1 million in cash. It’s a big number, but in my mind, I can’t afford not to save that. I’m doing it for the insurance that should either or both of us suffer job loss, it won’t leave us challenged to keep a roof over our heads or food on the table. As for major purchases, we won’t be financing anything because we don’t want to pay extra. Paying interest for something I can’t buy outright is an unfair tax for not having enough money in the first place — I can wait until I have the money.
The buying power of the middle class is eroding fast, and it will cause problems for every income level. But it will always be more painful to be at the bottom, which is why I’m staying out of there. I can’t afford to be poor.