Rich-People Money vs Poor-People Money: A Primer

Just in case you’re having trouble telling the difference:

Rich-People Money Poor-People Money
living (grows) dead (decays)
interest-bearing accounts (accounts that pay you to keep your money with them)

  • checking w/minimum balance
  • savings
  • trust funds
  • IRA
  • money-market
non-interest-bearing accounts (accounts that CHARGE you to hold onto your money for you)

  • checking w/no minimum balance
  • cash under the mattress
  • check-cashing services
  • service charges
Debt backed by assets

  • mortgage
  • car loan
  • student loan (the asset is the increase in your likely annual salary)
Unsecured debt

  • credit-card debt
  • “payday” or “cash advance” loans
dividend-paying healthcare or life insurance policies
Insurance Savings accounts (like for healthcare costs or car insurance costs, legal in some states)
mandatory non-dividend-paying car or health insurance

The real test of where you are poverty-wise is whether you can afford to have any rich-people money. There are certainly plenty of barriers to entry — the primary of which is a relatively massive lump of money you can leave lying around without needing to spend it. Here are examples:

  • The minimum balance for an interest-bearing checking account
  • A savings account with no service charges that would cancel out any interest earned
  • A downpayment for a car or a house
  • Equity (value above the remaining balance due on your mortgage) in a house or property
  • A retirement account
  • A trust fund

Many people, if not most, who currently have rich-people money received seed-money in a lump from a family that had enough rich-people money to be able to share some of it — and so far have managed not to squander it. Other owners of rich-people money budgeted for savings accounts and used that money to seed downpayments and minimum balances.

The largest barrier to transitioning from poor-people money to rich-people money is the ability to stop spending it all month-to-month, which is quite possibly the ultimate luxury in the current economy. The difference is really triggered by rich-people vs poor-people cash flow, i.e., the ability to pay all of your existing obligations while still putting at least ten percent of your income into a savings account — or the lack thereof.

There are very few barriers to transitioning to poor-people money from rich-people money. In fact, here are some relatively easy ways to cross the threshold downward:

  • Spend or give away all of your rich-people money. (After all, it just seems like its sitting there doing nothing, right?)
  • Lose your rich-people money in a financial crisis, like:
    • a serious medical emergency that isn’t covered by health insurance
    • a sufficiently long spell of unemployment that forces you to spend your reserves
    • a crash in house values that makes your house more expensive than the cost of your mortgage (wipes out your equity)
    • become a victim of theft or arson (without appropriate insurance)
    • be forced to replace some destroyed large appliance, like a refrigerator, hot-water heater, central heat/AC, or a necessary vehicle
    • suffer a divorce (with insufficient prenuptial armor)
    • bury a loved one (who died without appropriate insurance)
    • lose a law suit or have to pay a crippling fine

Given the huge number of ways it is possible to lose all of your rich-people money (if you have any) or be prevented from saving enough poor-people money to use for seed, it would seem that the biggest factor in holding onto rich-people money is good luck. Or the absence of bad luck. Or generous wealthy relatives to lend you money to help with crises. Or enough rich-people cash flow to be able to afford a huge suite of insurance premiums. However, I am routinely informed that it is a skill.

Regardless, I strongly recommend that at the first opportunity you scale back your spending and expenses to be able to afford socking away ten percent of your income into an interest-bearing savings account and put the maximum amount you can afford/legally invest (usually caps out at 15% pre-tax) into a Retirement Account. You may still have to dump it should a crisis occur, but at least you will have a cushion.

That’s all. Thank you for your attention.


October 11, 2009 · by xalieri · Posted in Everything Else  


One Response to “Rich-People Money vs Poor-People Money: A Primer”

  1. SRF Heavy Industries » Score, part 5 on December 10th, 2010 1:49 pm

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