Updated on 09.19.14

Financial Information and the Middle Class

Trent Hamm

In my morning roundup today, I made an offhand reference to a comment from Hayden Tompkins about passive income:

I think passive income, like most financial information on the internet, is aimed at keeping middle class people more comfortably middle class.

I think that Hayden is looking at the situation from a very narrow perspective.

Ask yourself this: what financial information would be useful both to a new millionaire and to a minimum wage worker? Most things I write about wouldn’t be applicable to both, but there would be a few pieces that work. Both should be striving to spend less than they earn and conserve the difference. Both should still be looking for maximum value in what they buy, even if the millionaire is looking at fuel efficiency in luxury cars while the minimum wage worker is trying to find a used bargain.

But there are obviously big differences, too. The minimum wage worker would like to know how to make nutritious and tasty meals for just a dollar or two (hint: start with beans and rice), while the millionaire is probably curious about investment advice (hint: start with Vanguard).

Personal finance advice speaks to a person’s current life situation. What resources do they have on hand right now, and how can they maximize those resources? In the most narrow sense, I’m talking about money, and that’s where most personal financial advice stops.

If you look at just money issues, the reality of the situation is that there’s not enough pure money advice in the world for the minimum wage worker to transform his situation into that of the millionaire. The minimum wage worker can do everything perfectly with his money for twenty years and still not be in the situation of the millionaire.

In short, when you look at personal finance advice as being strictly about money, Hayden is absolutely correct – it’s not enough advice to lift someone into a different financial class.

But money advice is just the start. Time is another important factor – an effective time manager can get more done in a day, thus increasing their earnings potential. Personal talent is another piece of the puzzle, as is education – what do you bring to the table that sets yourself apart? Natural drive and ambition are also important – when you come home from work, are you willing to spend the evening trying to build your dream, or are you content to watch American Idol? It’s about entrepreneurship, about using everything available to you to get ahead, not just your dollars and cents.

That advice goes far beyond mere “money” advice – but it’s the advice that’s needed to make the really big financial leaps. You can massage your money until the cows come home and make your life very stable and comfortable, but until you start applying those other attributes, you’ll never be able to make a giant leap.

That’s not to say money advice isn’t useful – it is. It can make the difference between sinking and swimming, and it can also provide the foundation to make other moves in life, and it’s those other moves that can build your current financial state into something truly transformative.

With The Simple Dollar, I try to mix all kinds of advice. I’ll write about an inexpensive bean soup recipe and good investments at Vanguard until my fingers hurt, but I also mix in time management, self-education, and pushing yourself to be something more. Some people tune in for the frugality, others for the investments, and yet others for the push towards building something great. I hope that the frugal folks learn something new from the time management stuff, and the investors pick up something from the bean recipes, and maybe a person will read a piece about what it takes to succeed, jump up, and take charge of their situation. They all go together in assembling whatever you want out of life (and figuring out what you want is another big part of it, too).

Money advice, though, is just a small part of things, and while money advice can save you from drowning in debt or help you to stretch your paycheck a little more or put your money in a smart place, it’s only one piece in a larger puzzle of living out your dreams.

As for me, I don’t want to make that leap into fabulous wealth. My goal is to put myself in a position where I can just completely chase my muses and I’ll be happy. I have no desire for the trappings of luxury – I just want freedom, emotional happiness, intellectual engagement, and the ability to go fly a kite in the park with my son and daughter whenever the mood strikes me. I know what I want, and I constantly seek out the answers I need to get there. That’s what The Simple Dollar is about, and I think it’s a journey that many others share, at least in part.

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  1. Trent,
    i think that your point is well made.
    I too seek a simple life where I can enjoy freedom to do as I please and not be enslaved to a J.O.B.
    I don’t need or want to be “Rich” as our society defines it, but simply wealthy enough to do as I please, when I please.
    My story at Dividend Money is a journey toward passive income that will allow me the freedom that I desire. If excessive wealth is a by-product of that journey, then it is simply a bonus.

  2. Michael says:

    I’ve been reading your blog for just over 6 months and have to say that you manage to blend the factual with the insightful with an ease that I strive for myself. You’ve got a reader for as long as you are doing this… thanks for all you do!

  3. I think that the financial information available to people in lower or lower-middle classes if anything teaches them how to get out of debt. While they prob will never be millionaires, I think it’s important to also teach about what happens AFTER you get out of debt. Besides being frugal, you can save and make sure you’re more comfortable than not later in life. I feel like the literature geared towards the lower classes does not mention this.

  4. junkcafe says:

    Great points, Trent. To get the most out of personal financial advice, I filter out the stuff that doesn’t apply to me at this stage of my life. There is no “one size fits all” approach. I find these blogs such as yourself and GSR to be quite refreshing. You and JD have that personal insight and candor that connects with the readers. There is certainly a sense that if you can do it then I can too.

  5. The secret is finding a balance between frugality, work ethic, risk tolerance, and lifestyle, that you are comfortable with and able to sustain while you reach towards your financial goals.

  6. Dave says:

    I agree w/ this post 110% … that’s why I think it’s so important to supplement blogs like this and GRS w/ things like Zen Habits and Dumb Little Man.

  7. Trent Hamm Trent says:

    “I agree w/ this post 110% … that’s why I think it’s so important to supplement blogs like this and GRS w/ things like Zen Habits and Dumb Little Man.”

    I think it’s good to read a lot of sources. Frankly, there is some overlap between all four of those blogs you listed because we all have more or less the same goals: personal success.

  8. !wanda says:

    Actually, the millionaires should probably talk to their tax advisors first. The tax laws are quite different for those with very high worths and incomes, and I’ve seen from friends that that the tax penalty for a wrong move can be quite expensive.

    What I’m afraid of is that with the cost of health care, living a simple and happy life while being prepared for the worst might take having a million dollars.

  9. Dave says:

    Yeah, there is overlap, but the FOCUS is completley different between your site and, say, Zen Habits. Leo focuses on inspiration, motivation, self-improvement, not personal finance. However, his message is just as important to personal finance as anything found here or at GRS. I’d love to see both you and J.D. write 50% of your articles on personal development, as it all ties in, just like you said. You guys both have the skills to pull it off. I mean, something like The Power of Now by Eckhart Tolle has helped me w/ my earning potential and work life just as much as *any* strict money book.

  10. one personal growth growth starts another one. Its like a bamboo, grows very slowly initially, the key is to be consistent in practice.

  11. Andy says:

    My goal is to retire as quickly as possible. I am 22 now and have tons of things that I want to do, most of which I don’t want to do enough to make them a career, but I still want to learn how to do them. So I am on a quest to retire young.

  12. Annie says:

    You would probably find the works of Ruby Payne very interesting. Her focus is on poverty.

  13. Now that you laid out your reasoning and why you post the variety of topics you do, it all makes sense to me. Because of this, people starting out or really wanting to delve into frugality can. However, for those that this is not enough or wonder how many posts on spending less than you earn one can read, personal development makes sense. I am ready for this next step, but have not yet committed myself. Just need to get over that last (big) hump from thinking to doing.

  14. guinness416 says:

    The mixing of net worth and “class” in this post (which is the fault of the quote from the other guy) is making my head spin.

  15. Once you realize the deep connection between psychology and personal finance, the doors just fly open. Everything is full circle.

  16. Lurker Carl says:

    My biggest beef with most financial advice is the information tends to be too general, superficial or just plain wrong. I am living proof that passive income keeps the middle class in their place.

    Having owned and managed rental properties for 20 years, there is nothing “passive” about passive income. Real estate must be actively managed and maintained, by the owner and your employees, and treated like a business instead of a hands-off investment. Some years you make money, some years you lose money. But just like most businesses, you’re likely to make more money when you take a hands-on approach to your properties. And your handyman skills will become well honed.

    Here’s the short story, I got blindsided by Uncle Sam two years ago, I was hit with the Alternative Minimum Tax. I hired a tax accountant for guidance in restructuring my financial life to avoid paying an extra $12K towards income taxes each year.

    As a result, I sold the rental properties and converted the “passive” income stream into a financial flash flood. I managed to ride the real estate bubble before it crested but paid a considerable fortune in capital gains taxes. I made it just in time for the stock market to flounder AND savings interest rates to collapse.

    I’m still in the middle class, slightly wealthier after cashing out and paying Uncle Sam but much poorer than I was on paper. Unlike the wannabe real estate tycoons lead us to believe, most of your gains goes toward taxes, repairs, improvements, commissions and fees.

  17. SJean says:

    “As for me, I don’t want to make that leap into fabulous wealth”
    I’d love to–but not at the expense it usually requires (in terms of time/family etc.)

    “Natural drive and ambition are also important ”
    I really appreciate that you acknowledge that.

    All and all, good article. I think that many pf blog readers tune in for frugality stuff initially, but once you have the basics down, people are looking for more. Or they just read to pick fights and argue. ;)

  18. J.D. says:

    Great comment, Lurker Carl!

  19. Personally, I would love to make the leap into fabulous wealth. But for now, I will continue to read the blogs, yours and others, write my own, to keep me focused and learn, learn learn.

  20. I totally agree with you that money is just a small part, that’s why I write about “simple ways to achieve wealth with mindful attention to all areas of life and live a rich life here and now.” We tend to compartmentalize things, to separate money from life, but true wealth is not just about having a lot of money.

  21. Mark says:

    More than any other post of yours that I’ve read this one for some reason hit home with me. I want what your working for also. I want “Freedom”. That is what making more or saving more will give me. The freedom to do as I want when I want. To help who I want, when I want.Also the ablilty to be there to help others do the same thing. I’m Justa saying!

  22. Fuji says:

    Absolutely Lurker Carl! I own a rental property worth $900,000 and after taxes, repairs, improvements, commissions and fees get a measely $15,000, at best. If I could cash out without paying horrific capital gains taxes I would. I’m impressed you bit the bullet and sold!

  23. Robert says:

    The most important thing is to read many sources of ideas on how to improve your finances, and apply the ideas that best suit your current circumstances (and your own personality). No one else’s exact approach is likely to work for any one of us, because each of us has unique circumstances.

    In my case I was forced to change my spending habits by being laid off from a very good job. While I have since found a job that pays about half of what I once made, I actually find it easier to save than I ever did when I was earning much more money, thanks to having had to adjust to very little income for several years.

    Unfortunately, the “get laid off and 3 years later find a job paying half of what you previously earned” approach to improving one’s finances is not likely work for most Americans. I just happened to find a way to make it work for me, simply because I had no other alternative.

  24. Amy says:

    I find that the Simple Dollar to me is motivation & inspiration. I read the Simple Dollar first thing in the morning at work and it reminds me of why I’m here and what I’m working toward. Thank you!

  25. TheFrugalPlace says:

    I think one thing often over looked is that living the “lower income” life can be MORE expensive in some aspects, sometimes, than living the middle or higher income life.

    Let me explain. Simple problems when you live on the edge, like a washing machine breaking down, can cost you tons of money in having to use the laundromat to wash your clothing.

    If your only “beater” car breaks down and you have to repair it to go to work, then you may pay your other bills late that month and incur a ton of late fees or higher interest rates.

    Medical problems for those of us in the lower income are also a bigger deal because we tend to have less than wonderful medical insurance, though we get the same illnesses/diseases as others. Ever worked where you had no insurance, your boss did, and they came to work sick and caused you and your entire family to then become ill? Where it cost the boss a $10 co-pay it could end up costing a family $1000 if something like strep or infection is involved. (Or in our case it caused my DH to have to be in the hospital for over a week!)

    What I have noticed between the times I have had the 80K income, and the 20K one of today (for a family of 4 in California…) is that money essentially buys you choices. When you have a higher income you can pay to fix that washing machine or even buy another one, even if it has to be on credit. When you have NO extra income or credit available and the washer breaks you lug your items to the laundromat and pay the $2.50 a load to wash them… until such time as you can replace the washer… You know ultimately it’s cheaper to buy/repair your washing machine but it’s much easier to come up with the $10 for laundry each week than to deal with the $100-300 all at one time.

    When you just don’t have enough income each month you also are more likely to let the auto/home/human body maintenance issues slide for as long as possible. This in turn causes you to end up with higher bills in the longrun when things do go wrong and require immediate fixing. But, sometimes it’s hard to justify not paying a bill to have your oil changed, eat organic/healthier foods, go to the doctor for a check-up, or fix a small hole in the roof, or whatever….

    Like I said, we have been on both sides and there is a lot of stress and frustration in being “low income” that I think most people who haven’t been there simply can’t relate to. Some of us simply don’t have a “latte” factor to cut-out and when the $hit hits the fan hard chices have to be made.

  26. How is noting that the majority of financial information is written for the middle class to slowly grow wealth for a decent retirement a ‘narrow perspective’?

    Yes, people have different audiences, however the demographic of people who read Yahoo and MSN finance vs. the people who read Forbes online is going to be substantially different.

    And Yahoo and MSN get better numbers. I was simply remarking that the websites for wealth are completely different than websites for the middle class. The websites for wealth are aimed at ‘wealth preservation’ and how to generate wealth. It’s a whole other ballgame that, as a reasonably educated person in their 20’s, I was shocked to find I had never seen before in my life.

    If you want a concrete difference: on Yahoo or MSN, many articles talk about saving for retirement or for your child’s college education. On Forbes I read about something called a legacy that pays for what you want without you ever touching the principle.

    If that isn’t a WTF moment, I don’t know what is.

  27. lisa says:

    Nice article. We are all at different stages in our lives, and the financial advice for one is not necessarily right for the other- there are general trends, sometimes based on age, or debt level, job type, etc. Thanks for reaching out to all of us.


  28. Charles Cohn says:

    Regarding your mention of rice and beans: Beans have gotten a long-lasting reputation as a poverty food, but modern nutritional thinking considers beans to be a more healthful source of protein than meat.

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