‘The Difference’ between you and the rich

Meet the financially comfortable
Like the wealthy, the 27 percent of Americans who are financially comfortable are standing on solid — well above average — financial ground. On average, they have investable assets of $240,000 — a number that rises with age.

Their good habits have put them there. The financially comfortable are even more likely than wealthy individuals to make — and stick to — a budget. In other words, they’re careful about how much they spend. They’re similarly careful about how much they borrow. Nearly 70 percent pay off their credit cards in full every month, and the rest either pay more than the minimum or don’t use cards at all. Three-quarters devote a chunk of household income each month to personal savings. That’s striking in an America that for the last decade has been saving nothing at all.

These are people who, like the wealthy, are in a good place — not just financially but in life. In large part, money does not stress them out. A scant 2 percent — a number so small it could be a result of statistical error — say money causes headaches in their lives. Only a handful say they’d have any trouble whatsoever paying a large medical bill if it hit unexpectedly, or staying afloat if they lost their household income temporarily. Although they’re not as satisfied with their social lives, health, or sex lives as the wealthy are, they’re just as satisfied with their family life, which makes sense, since they are more likely to be family focused, but less so on friends, colleagues, or neighbors.

With all of those positives, why haven’t the financially comfortable become wealthy? They’re missing a few solid pieces of the wealthy personality. They’re less optimistic. Less likely to take a risk at an advantageous time. Less likely to reach out of that inner, familial circle to make a connection with someone who holds the keys to getting ahead. As a result, they are a little less grateful as well.

Don’t get me wrong. Financially comfortable is not a bad place to be. It’s a place most Americans should aspire to. But once you reach it, digging into your soul and unlocking The Difference will allow you to reach heights — in wealth, success, and happiness — that perhaps you never realized were possible.

Meet the paycheck-to-paychecks
A life where you can buy what you need but never what you want. Where after paying for housing, food, and clothing, you have very little left to pay for anything else. Where gas-price hikes make you ask: “What do I have to give up today to put enough in the tank to make it back and forth to work?”

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This is reality for more than half of all Americans. More than half! Some 54 percent say they’re stretching it, living from one paycheck to the next. They’re making ends meet, but they’re struggling to do it. Any unexpected expenditure could tip the balance in the wrong direction. A large medical bill. A hole in the roof. And it’s taking a toll. One-third say their financial situation is causing a lot of stress in their lives.

Why are they here? What separates the paycheck-to-paychecks from the financially comfortable and the wealthy? Both personality and habits. But in this case, the habits are the driver. Sure, sometimes the catalyst is something out of your control, such as a health problem or job loss. But our research showed that overspending is the key reason that people slip from a position of financial security into a paycheck-to-paycheck existence. Consider how many people are on precarious ground because they bought houses they couldn’t afford to live in or maintain. How many are on shaky territory because they bought one too many pricey cars, took yet another expensive vacation, or fashioned an image fueled by wearing the right clothes, eating in the right restaurants, or walking the right dog?

It’s a vicious cycle. Once you overspend, it’s tough — if not impossible — to tap into the habits that move people into the range of the financially comfortable. Once you overspend, you cannot save habitually. Credit card debt is a savings killer, and only 22 percent of paycheck-to-paychecks can pay off their balances every month.

But while overspending doesn’t leave much to invest, it doesn’t leave zero. More than one-third of these people participate regularly in their company’s 401(k) or some other retirement plan. This automatic investing is clearly responsible for the somewhat surprising fact that paycheck-to-paychecks have investable assets, on average, of $83,000. If the number sounds higher than you’d expect, that’s because it’s skewed by what I like to call the “six-figure PTPs.” These are the high earners — the managers, lawyers, entrepreneurs — who still can’t seem to make ends meet. The folks who feel broke despite the fact that they’re bringing in $100,000-plus a year. Fully half of paycheck-to-paychecks, however, have less than $25,000 to put to work to grow their futures.

Being in this position does not inspire Confidence. Or happiness, resilience, risk taking, gratitude, or any of the other attributes of the wealthy personality. Even when they do have assets to invest, they’re not investing them the way you must to become wealthy: aggressively enough to beat taxes and inflation. Three-quarters say the stock market feels too risky for them. One-third can’t even envision a day when they won’t have to work to meet their financial needs.

Again, this is not a life sentence. If you’re in a paycheck-to-paycheck position, learning — and then practicing — optimism, resilience, appropriate goal setting, and prudent risk taking will put you in position to find your passion in life. Once you find that passion, you’ll no longer feel the need to overspend to fill the emptiness in your soul. In fact, because you’re more self-satisfied, you’ll be inspired to take care of yourself in other ways by saving more, investing appropriately, and annihilating that credit card debt. Likewise, saving more, building up that retirement account balance, investing it for growth, and watching the balances on your monthly credit card statements dwindle will put a smile on your face and make you feel you can conquer the world.

Meet the further-in-debtors
Finally, there are those people who can’t even tread water. They’re already in a hole, but instead of making their way out, they’re tunneling down further. Some 15 percent of Americans say they’re sinking further into debt each month.

It’s a dire picture. Less than one-quarter of further-in-debtors save anything each month or make a contribution to a retirement plan such as a 401(k), which is why 56 percent of them have less than $10,000 in investable assets to their name. Three-quarters say if they had a large medical bill tomorrow, they would find it difficult to pay. Not surprisingly, they’re both unhappy and insecure. Nearly half get physical symptoms like insomnia, heartburn, stomachaches, or headaches when they think about their finances.

What do they blame for their situation? Bad luck.

What do I blame? Hubris.

The paycheck-to-paychecks overspend and know they’re doing something that’s not in their own best interest. The further-in-debtors overspend without a thought because they feel entitled. They deserve the nights out, the new clothes, the latest technology. How do I know? Our research gave me a peek into their budgets. A full third devote a decent chunk of their budget to entertainment or extras — nonessentials as far as I’m concerned. Far fewer devote any money at all to saving for tomorrow.

Can they change? Can they turn the situation around? Absolutely.

They need to embrace as many of the components that make up The Difference as they can. And they’ll need to use the arsenal of tools in the chapters that follow to keep themselves on the right track.

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