*If you missed Part 1 of this Picketty Project check it out here.*
To the six of you that got through Monday’s post, congratulations! Now for the stuff most of you actually want to learn about. (Who cares about the 1% – what can I do to make sure I don’t end up as a used-to-be-middle-class person?!)
To put things bluntly, if you screwed up the birth lottery and don’t have rich parents, then screwed up the marriage lottery and didn’t marry rich, then you’re at a substantial disadvantage if you want to rapidly increase your net worth. You can argue against this all you want, but the facts are pretty straightforward.
That being said, while the path to the upper part of the middle class might have gotten narrower and harder to navigate over the past few decades, there is still a trail to follow.
If You Can’t Beat ‘em Join ‘em
We know the game is slanted. We know that those who own stuff are going to see bigger cheques than those that work for cash going forward. So the easiest way to get ahead is simply to align your interests with the rich and super rich. The best way to do that is buying stocks – ASAP. We’ll let you in on how we choose to get exposure to stocks here, but the key thing is to become an owner of businesses (that’s what a stock is for those of you that are a little new to this stuff) as soon as life lets you. If that means cutting out a few luxuries or living in a slightly smaller house, you’ll make those sacrifices if you want to get cash flow from investments as opposed to only your job.
Don’t Do the Taxman Any Favours
Over the past few decades in Canada, and especially in the USA, new laws have consistently been created that shield investment income – dividends and capital gains – from taxation. There are all kinds of black hole debates we can waste our time on when it comes to simplifying the tax code and other stuff most people really don’t understand (which is 99% of the problem), but at the end of the day every time some maverick politician tries to change these taxes to make it less profitable to get money from investing instead of actually working or owning a business, they get bombarded by incredible amounts of negative media driven by the huge dollars that have a massive interest in keeping things the way they are. It’s hard to win elections without financial backing these days and more and more of the people with the resources to give financial backing appreciate how investment income is currently treated. It’s tough sledding trying to change that, so instead, use it to your advantage.
Check out my article about new TFSA limits for more information on how a person who is thinking about becoming “rich-ish” should really prioritize TFSA contributions.
Diversify Your Income
The rich and upper middle class (however we separate the two these days) usually don’t depend on their jobs as their sole source income. In today’s world of outsourcing and freelancing, very few jobs are safe and the 30-year career with one company is quickly being relegated to the history textbooks. The more sources of cash flow you can snag the better you are prepared for the loss of any single one. Starting a side gig, investing, renting your basement suite, or working a part-time job are still legitimate ways to get ahead and keep yourself out of crisis mode if you lose your main source of income.
I’m going to briefly slip into teacher mode here for a little while and say that becoming educated is a real hedge against getting run over by the new economy. I don’t mean finishing high-school – although that is fast-becoming a necessity – or getting a Bachelor of Arts degree, I mean becoming curious about the world. Spend an hour reading before casting a vote every four years, and/or glance at a newspaper every once in a while – they come right to your phone! Understand how various tax proposals work or how governments are spending your tax dollars so that you can make an educated choice in an elected representative. Regardless of your political affiliation, only viewing media generated by people who think exactly like you do and dismissing everything else as a product of the “elitist loony left” or the “dumb greedy uninformed right” is a sure way to become the person no one wants to talk to at a dinner party and the person who others know isn’t nearly as educated as they think they are.
Related: TFSA vs RRSP: Head to Head Comparison
Ok I’ll get off my soapbox now
Despite the trendy talk about inequality we still don’t have it nearly as rough as pretty much any of our forefathers did before 1940 or so. There are still plenty of ways to climb up the social mobility ladder – but let’s make no mistake, that ladder is getting harder to climb all the time.