SRF Heavy Industries

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

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.

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