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 401( k), 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.
The average savings for a 65yearold is less than $ 200,000. No one can retire with that amount of money.
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 $ 5,000 a month. That is everything from food to mortgage.
How much could you save?
Income: Taxes: @ 23 %
$ 4.5 million
$ 1 million Expenses: $ 5,000 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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