Graham Stephan: 4 Steps To Jump from Middle Class to Wealthy
According to statistics, the middle class may be shrinking, and that has some Americans alarmed. But this can be seen as an opportunity, for those willing to put in some effort.
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This is because the upper class is actually expanding, meaning that some of those “lost” from the middle class have jumped up to being wealthy.
Of course, this isn’t something that happens automatically — it will take some dedicated effort. But financial personality Graham Stephan, in a recent YouTube post, says that four simple steps could help point you in that direction. Here are the steps to take to go from middle class to wealthy.
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Your Credit Score Is Everything
Stephan’s first piece of advice is to pay more attention to your credit score. According to Stephan, your credit score is everything.
A high credit score demonstrates that you have the capability to manage your finances and pay back everything you borrow, so it earns you the right to pay lower interest rates on any loans you take in the future. Not only does that give you much more flexibility with your financing options, it means you’ll save big on your interest costs.
It can also open up a whole world of opportunities for you. The ability to borrow at a low-interest rate and leverage that money to earn even higher rates on investments, for example, is a move straight out of the playbook of the wealthy.
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Save Money
The rich get richer because they have the cash reserves to take advantage of market dislocations. In other words, when the market sells off by 50%, those with less money have to sit there and take the loss, waiting for the market to rally back 100% just to break even.
But if you have money saved, you can take advantage of opportunities like this to get in. The same applies to any other type of investment. If it’s the housing market that crashes, for example, only investors with cash sitting on the sidelines will have the available capital to take advantage. This makes the ability to save money an essential cornerstone in your quest to jump from middle class to wealthy.
Invest Your Money
Savings are important; but, unless you prudently deploy that money, you won’t ever make the jump to the upper class. As the very quotable billionaire CEO of Berkshire Hathaway Warren Buffett often says, “If you don’t find a way to make money while you sleep, you’ll work until you die.” The point of that message is that you need to make your assets work for you so you can live off the profits they generate.
Stephan is essentially making the same point, saying that yet another reason the rich get richer is that they have access to investment opportunities that they take advantage of, rather than worrying as much about how much they’re earning in salary.
Think about it this way: Why have wealthy CEOs such as Elon Musk, Larry Page and Mark Zuckerberg agreed to work for a salary of just $1, when they could ask for millions of dollars instead? Part of the reason is that they don’t need their salary to maintain their wealth, which comes primarily from their investments.
Think Long Term
You’ll often hear from successful investors that one of the keys to generating wealth is to think long term. Buffett, for example, is famous for noting that his favorite holding period for an investment is “forever.” But he’s far from alone.
According to Stephan, studies show that time in the market beats timing the market nearly every single time. For starters, the longer you hold on to your investments, the more you’ll benefit from compounding returns, which is a key factor in building long-term wealth. You’ll also benefit from lower capital gains tax rates, which are typically 15% but in some cases can be as low as 0%.
There are numerous other reasons to think long term with your investments as well. When you think of your portfolio as lasting you 15, 20 or more years, it helps to remove emotion from the equation. When you think of how the markets will likely be significantly higher decades down the road, it helps remove the short-term panic that can push you to sell out right when things look at their worst.
In fact, successful long-term investors actually embrace market corrections and bear markets, as it allows them to get even more money into their investments before they turn around and go higher.
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