Americans like to keep score. Who’s up? Who’s down? Where do I stand? Those curiosities extend to our money — especially in a country where wealth is often equated with success.
Finance expert George Kamel, who is among the personalities regularly featured on “The Ramsey Show,” tries to satisfy that curiosity by breaking down the common actions of folks who are broke, average or wealthy in a YouTube video posted Aug. 21.
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Kamel contends there are “some pretty predictable money behaviors that people have” depending on their financial situation.
Understanding your financial status isn’t just about knowing where you stand. It can be the first step toward informed decisions that can move you up the ladder.
Broke: The struggle to stay afloat
Being broke is often tied to repeated financial decisions that make it impossible to get ahead. For instance, many people in this category fall victim to predatory lending schemes designed to keep them in debt.
Kamel highlights the perils of payday loans and car title loans — short-term, high-interest loans that seem like a quick fix but often come with sky-high interest rates. These loans are designed to trap borrowers in a never-ending cycle of debt.
Average: The middle-class trap
If you’re not broke but struggle to get ahead, the “average” category might describe you. Some middle-class Americans try to live above their means, Kamel says, driven by the desire to look wealthy rather than actually being wealthy.
A common behavior noted by Kamel is the pursuit of credit card rewards. These programs are enticing but they often encourage overspending to trigger reward milestones. Additionally, purchasing a new car or leasing a car are habits that can keep you in financial limbo. New cars depreciate quickly, often losing 60% of their value in the first five years, according to Kelley Blue Book.
If you need a vehicle, Kamel suggests buying a used car instead since they’re less expensive and typically won’t drop in value as rapidly.
Wealthy: Building and preserving wealth
Wealthy individuals don’t just earn more, Kamel says, they think differently about money. They prioritize building assets over liabilities and make financial decisions that help them grow their wealth over time.
Wealthy Americans tend to avoid consumer debt, Kamel says. Instead of carrying credit card balances or taking out loans for depreciating assets like cars, they focus on assets that appreciate over time, such as stocks or real estate. They also tend to live below their means, allowing them to save and invest more of their income.
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Determining where you stand
To figure out whether you’re broke, average or wealthy, start by analyzing your finances.
First, calculate your net worth by totaling the value of your assets, including cash, savings, investments and property. Subtract your liabilities, such as debt, mortgages and loans. A positive net worth indicates financial stability or wealth, while a negative net worth suggests financial challenges.
Next, assess your savings. Have you saved for emergencies, retirement and other long-term goals? If your savings are minimal or non-existent, you might be closer to broke than average or wealthy.
Now, evaluate your debt. If you’re burdened with high-interest debt, such as credit card balances or payday loans, you may be struggling financially. On the other hand, manageable debt — like a low-interest mortgage or student loans with a clear repayment plan — is common among average individuals. Wealthy individuals typically have little to no debt, or they use debt strategically to grow their wealth.
Finally, analyze your income. You’re probably struggling if you consistently spend more than you earn. Conversely, you’re more likely to be average or wealthy if you have disposable income that you can save or invest.
Change your level
Kamel emphasizes the power of changing habits.
“Regardless of how you grew up, what family you came from, the mistakes you’ve made, I’m telling you, you can turn it around,” he said. “If you start doing this rich people stuff, you gain control of your money and you will start to build wealth and have a life you could have never dreamed of.”
You can start by avoiding high-interest loans and killing off unnecessary debt. Focus on paying off high-interest credit cards. Re-think your spending habits and prioritize saving and investing.
Consider taking advantage of employer-sponsored retirement plans like a 401(k) and think about investing outside of your company’s plan as well.
Finally, living below your means can truly provide a boost to your finances. By spending less than you earn, you’ll create a financial cushion that allows you to save, invest and possibly move up.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Source Agencies
