Why the Middle Class Tend to Stay Middle Class
By Steve Davis
It is a fact that it is hard to break out of the middle class and become wealthy . There are many obstacles that must be overcome . The good news is that most of these obstacles can be easily overcome through education . Not formal education , high school , or college , but from selfeducation .
I was born and raised middle class . The strategies that the middleclass implement were engrained in my head .
The strategy was to do well in high school , go to college , get a job , scrimp , and save in an IRA or 401k , work for 45 years , retire , and live off of your savings . This was the map I was given . I bet that map sounds familiar to you , doesn ’ t it ? All middleclass people are given this map . The problem is the map doesn ’ t work . Ninetyfive percent of Americans fail to retire by age 65 using this map . The average savings for a 65yearold is less than $ 200,000 . No one can retire with that amount of money .
What opened my eyes was after working for the same company 70 hours a week , for five years straight , I won a national sales contest . They sent me to Hawaii for a week . When I got back , they cut my pay by $ 20,000 a year . This woke me up that the map was wrong . I had to do something different . I began selfeducating . I bought every book and tape program off latenight TV on real estate investing . Within 2 months I was making more money than at my job . I quit the 70hour work week immediately . It saved my marriage by the way .
Here are six things that I learned that keep the middleclass , middleclass .
Number 1 :
Thinking you can cheap your way through life and save enough to retire .
People cut coupons , conserve water and electricity . They drive across town to save a dollar on tomatoes . They think they can be cheap and save their way to retirement . This is just not true . You may be able to save a few hundred dollars a month being cheap , but think about it , can you live off a couple of hundred dollars a month in retirement ?
Let ’ s do the math . Let ’ s say you work from age 20 to 65 ( 45 years ). You make an average of $ 100,000 a year . Less at the beginning , more toward the end of your career . That is $ 4.5 million over the 45 years .
Let ’ s say your average expenses were $ 5000 a month . That is everything from food to mortgage .
How much could you save ?
Income : Taxes : @ 23 %
$ 4.5 million
$ 1 million Expenses : $ 5000 a month $ 2.7 million Max Savings : $ 800,000
Using the 4 % rule that would give you about $ 32,000 a year in retirement plus your social security , which would be around $ 2,000 a month . That would give you less than $ 5,000 a month in retirement . You would have no money for romance , travel , or anything fun . This would be a horrible retirement by any definition .
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