The middle class in America is caught in a vise, and they need a way out.
There is a way, of that I am sure.
But, like almost everything else in life, it's not about anybody keeping you down.
It's about you being honest with yourself that it's up to you. It's about understanding that all those "other people" keeping you down don't give a damn about you. They don't even know you. They do what they do for themselves and if they can use you… oh, they will.
I'm talking about the bankers and brokers who too many of the middle class rely on.
They're in it for themselves. Their job is making money for themselves.
If they make money for you it's good for them because they keep you in tow. If they don't make money for you, do you think they really care? No. They don't. There's always another sucker – I mean customer – to be had… I mean helped.
How do you help yourself up and out of the middle class if, according to the Bloomberg article I referenced last week, some 67% of your (the middle class) wealth is tied up in your home and 401(k) or other retirement "assets?" How do you "diversify" if you don't have money lying around and aren't sitting there thinking, "Gee, now what am I going to do with all this cash?"
It's a lot easier that you ever imagined, really.
Let me make this as simple as I possibly can.
First and foremost, before you can do anything to help yourself, you have to rethink your life and do it – because your life depends on it.
Embrace being middle class as a major head start. You're not poor – that's huge.
I've been broke, but I've never been poor. I'm self made. I'm not rich. My definition of rich means never having to look at the price of anything (including that Bentley I looked at yesterday… I had to look. I looked again. And again. The price was still $360,000). I'm wealthy. I was middle class and before that I was broke. But I was never poor.
Do not ever think you are poor. If you are middle class, you are on your way to wealthy.
Change your mindset. I did. I had to, I was broke. Think about what you have to work with. The crazy thing is that you have more than you think. You probably have a lot more than I ever had to start with – which was nothing.
Before I get to your house, or your stocks or investments, everyone, myself included, has to start with two absolute rules:
- 1) Stop spending what you have on stuff that you want. Buy only what you need. And don't fool yourself. You know the difference between what you really, really need, like food – as in eating at home – and what you want… or covet… like that new fashionable whatever thing, or a $25 bowl of 50 cents worth of pasta at that place.
2) Stop – as in immediately – spending what you don't have.
There's only one idea behind those two absolute rules. If you're middle class, and you feel stuck because you don't have any money, if you start seeing that you can actually put aside some money, no matter how little, you've taken the first step towards wealthy.
If you own a house, don't pay down the mortgage – unless you don't have anything else to put your money into. If you think that way, you are stuck and will remain stuck.
If you can refinance your mortgage to save money every month, do it. But you won't be "saving" that money. Along with the money you're no longer wasting, you're going to be investing it.
You're going to start a new, fun job: Making your money work for you instead of against you.
Later on, if you become great at your new job, you might even want to get a home equity loan on the house you own – and are paying down. The loan isn't there to spend stupidly, but to add to your growing money-making capital base.
But we're getting ahead of ourselves.
If you have a 401(k) or some kind of retirement account somewhere, you're already on your way to being wealthy.
Forget about bankers and brokers and anybody telling you exactly what to do with that money. Take it over yourself. It's your money. If you leave it up to someone else to make you money with your money, you're making a big mistake.
It's your money, and no one will ever be more concerned about your money than you!
Very few retirement savings plans are worthwhile. Most of them are idle bets that being passive will get you up that mountain you want to summit. It ain't gonna happen.
If you have stocks in your retirement account, or a savings plan, take control of your money. Through self-directing your IRA – or whatever retirement account you have – you can diversify properly.
The Bloomberg article's premise was that the middle class is stuck where they are because they have no assets to diversify and their limited wealth is too tied up in their home and retirement accounts, meaning they are susceptible to swings in home prices and the stock market.
Gee, thanks for that insight. Who would have ever figured that?
If you take control of your stocks and look at your home as an asset, like your stocks or bonds, you can become the master of your own destiny. You can diversify, you are not stuck.
You can use your house as an appreciating asset – if it is appreciating. You can take equity out and diversify your "portfolio" and "hedge" your home's value, as well as your investments.
If you think your home is going to fall in price, you can hedge against that potential loss. If you knew before it fell in value, say back in 2007, you could not only have protected yourself, you actually could have made money in the downturn. I made a ton.
It's the same with your retirement money. If you were on top of it, actively shepherding it, not passively hoping it would all be okay, you could have gotten to the sidelines or hedged what you had. I did.
So how do you do all that?
First, take charge of your own money.
Second, educate yourself. Read a few books on how to invest and learn how to do it.
And third, you do it yourself.
I'll digress here. It isn't hard. It's just hard to find the right mix of books and mentors – to become educated enough and to feel confident that you can do it.
I'll put a list together for you next week, but I know most of you won't want to slog through them. That's why I'm writing the What You Absolutely Need to Know About Money series right here in Money Morning. I am writing, for you – and for all the middle class – the shortest, best, most practical "how-to" trade, invest and become wealthy book ever written.
There isn't one out there. That's why I have to write it myself. It won't be more than about 100 pages. I'm writing it because there are secrets – things that you must know – out there, they're just not all in one place.
If you think that you can't learn how to make money with what little you have, if you think you're stuck in the middle class, do a Google search for "Bentley S3 Continental Flying Spur."
And remember: I was broke before I was middle class.
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What You Absolutely Need to Know About Money (Part Three)
- Money Morning:
The Greatest Investing Mistake You'll Ever Make
- Money Morning:
What Everyone Absolutely Needs to Know About Money
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.