Ever wondered why some people get rich while some stay in the middle class? It is not their income levels or sheer luck, it is their investing habit. Rich people have disciplined investing habits and focus on saving and growing what they earn, while the middle-class ends up spending most of their earnings.
“It’s not your salary that makes you rich, it’s your spending habits.”
Charles A. Jaffe
“If you buy the things that you don’t need, you will soon be selling the things that you need.”
Warren Buffet
Below chart explains the investing habits of rich and middle class:
This investing habit chart shows only an indicative percentage of income that the rich and the middle class allocate towards spending and investing.
Needs are basic requirements for living such as food, clothes, housing, education, etc. Most of these are necessary and one can’t avoid.
Wants are discretionary spending and usually towards fulfilling a desire such as going for a vacation, owning expensive gadgets, or buying a car.
One might think that even rich people spend on fulfilling such desires. Yes, it is true. The difference is that rich people save first and then spend from the returns generated from their investments, while the middle class spends directly from their income or at times breaks their savings to spend on their wants.
It is important to note the difference between investing and saving. Most middle class people put their money in safer instruments (savings accounts, fixed deposits, etc) so that they can use it later for future expenses. These savings have low returns and can hardly catch up with inflation, thus reducing their purchasing power in the future. Whereas, the rich invest in high growth instruments such as stocks, bonds, real estates, or even directly in companies to generate multiple sources of future income.
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Recommended books:
- Rich Dad, Poor Dad – Robert T. Kiyosaki
- The Richest Man in Babylon – George S. Clason
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