When it comes to money there are 4 functions: earning, saving, investing, and spending.
1- Earning
Earning refers to the income you get in return after a labor. So it can be your monthly paycheck, or money you get here and there doing some little job and getting paid on the spot. Earning money is a skill that poor people struggle to understand. Their source of income is not stable. The middle class have a source of income in a stable manner because most are getting paid per month. But it is the only income they depend on. The rich master the art of making money (earning). They know that monthly paycheck alone will never make them rich. And if you only depend on a monthly paycheck you are just one step ahead of being broke. That’s why the rich have more than one source of income.
2- Saving
Saving is a percentage of money you take out from your income and put it aside. And that money is not for an early usage. You do this money separation even before you plan the budget of spending. Saving skills is something that the poor don’t have at all. The middle class struggles to understand what it is and how to do saving. They often do their expenses first and if something is left they call it saving. The rich have savings in a stable mode. They budget for their savings unlike the middle class who just just call the remaining of the expenses savings.
3- Investing
Investing is to allocate a percentage of your income in the expectation of some benefit in the future. So it is when you put a portion of your money to start a business, or to buy stocks or put it in a mutual fund. Investing is a skill that both the poor and middle class don’t have. This is the riskiest thing that could exist in life for the poor and middle class. They see it as a way to throw away your money. Investing is the skill of the rich. The rich know that finance in society is just like the monopoly game: either you play it safe and run around collecting the 2000 euro every round that you offer to those who bought hotels and buildings. Or you decide to be the one who buys the hotels and buildings and collects the money of those who play it safe. And investing constitutes a source of income which allows the rich to get richer 2 times every round.
4- Spending
Spending is the portion of your money you allocate to food, bills, and buying stuff etc. This skill is what most would think that the poor and middle class master. But in reality they don’t, otherwise they would not overuse this function of money. The simplest rule of money is to not spend more than what you earn. People are in the poor and middle class because they are full of bad debts and mortgages which mean they have even spent money they haven’t earned yet. The poor and middle class spending do not follow logic but mostly emotion and they always buy liabilities. You earn 1000 euro per month but you want to go for holidays which will cost you 3000 a week just because you have to take a picture for social media. The rich have high expenses, true, but it is always below what they earn because they also have high earnings. Rich people’s expenses follow logic. They don’t buy what they want, they buy what they need. They don’t buy liability , they buy assets and let the asset buy the liability. The expenses of rich people are very controlled. They know where every single dime went.
