As a recap from last month’s Sips ‘N’ Tips I discussed that there are basically two paths of thinking financially. The two basic paths were labeled, groups A and B. The unique characteristics of Group A were addressed last month.
Let’s take a look at Group B. This group has an intentional relationship with money, an understanding as to how money works, and a progressive impact on their families, with regard to passing on generational wealth. Group B represents about 5% of Americans often referred to as the wealthy.
• This group tends to see the big picture and plans beyond the present. This group will look at where they desire to be and back engineer to the present to see what needs to be done to obtain the desired future result.
• They tend to make well over $100,000, often over $250,000 a year which places them in the 5% to 14% income bracket. The group of individuals making over $250,00 a year varies by state: 2% of households in South Dakota make over $250,000 while 5% make over $250,000 in Oklahoma, Nevada and Florida; 10% make over $250,000 in California and 13% of households in Massachusetts, New Jersey and Maryland make over $250,000 (worldpopulationreview.com; Median Income by State-Investopedia; Income Percentile by State Calculator).
• Many in Group B tend to be entrepreneurs. A significant amount of the wealthy, about 88% are business owners or entrepreneurs. There is a strong correlation between entrepreneurship and wealth. [10] Robert Kiyosaki stated in his book, The Cash Flow Quadrant that over 80% of Americans make their income trading time for money and will never become wealthy. The 5% that own a system that runs their business or know how to make money work for them are the ones who will achieve financial wealth. They may be small to large business owners who are not satisfied with the 9 to 5. They have a vision of what they want to do and will do whatever it takes to get it done. They may work long hours but are in control (Forbes.com, cnbc.com, finance.yahoo.com).
• They learn how to make their money work for them vs always working for the money. They understand and put to use many of the wealth principles
• This group understands and utilizes the benefits of passive income, being debt free and wealth building aspects of permanent life insurance.
• Group B understands the tax buckets and how to use them. They tend to live below their means, choosing to plow money away for the future.
• They have a diversified portfolio which may include deferred retirement plans as well as indexed funds. The principles of tax-free growth, participation in the upside of the market, but protection from the downside of the market help structure sound planning.
• This group tends to work with a financial advisor and understands the fundamentals of how money works. They understand the choices available to them and utilize the “power of choice” to build a balanced family growth and retirement plan.
The differences between group A, the working middle class, and group B, the wealthy, have and will continue to produce a profound impact on the financial standing of these individuals for generations to come. A positive relationship with money, understanding as to how money works, and the ability to pass on generation of wealth should not be reserved for the few. The final article in the series will look at some of the money principles that will enable our readers to have a better “toehold” in the world of financial planning and lesson the gap between group A and group B.