The Secret to Leaving the Middle Class Behind

by Shah Gilami, Money Morning.com

If [Financial Advisors] make money for you it's good for them because they keep you in tow. If they don't make money for you, do you think they really care? No. They don't. There's always another sucker - I mean customer - to be had... I mean helped.

How do you help yourself up and out of the middle class if, according to the Bloomberg article I referenced last week, some 67% of your (the middle class) wealth is tied up in your home and 401(k) or other retirement "assets?" How do you "diversify" if you don't have money lying around and aren't sitting there thinking, "Gee, now what am I going to do with all this cash?"

It's a lot easier that you ever imagined, really.

Let me make this as simple as I possibly can.

First and foremost, before you can do anything to help yourself, you have to rethink your life and do it - because your life depends on it.

Embrace being middle class as a major head start. You're not poor - that's huge.

I've been broke, but I've never been poor. I'm self made. I'm not rich. My definition of rich means never having to look at the price of anything (including that Bentley I looked at yesterday... I had to look. I looked again. And again. The price was still $360,000). I'm wealthy. I was middle class and before that I was broke. But I was never poor.

Do not ever think you are poor. If you are middle class, you are on your way to wealthy.

Change your mindset. I did. I had to, I was broke. Think about what you have to work with. The crazy thing is that you have more than you think. You probably have a lot more than I ever had to start with - which was nothing.

Before I get to your house, or your stocks or investments, everyone, myself included, has to start with two absolute rules:

1) Stop spending what you have on stuff that you want. Buy only what you need. And don't fool yourself. You know the difference between what you really, really need, like food - as in eating at home - and what you want... or covet... like that new fashionable whatever thing, or a $25 bowl of 50 cents worth of pasta at that place.

2) Stop - as in immediately - spending what you don't have.

There's only one idea behind those two absolute rules. If you're middle class, and you feel stuck because you don't have any money, if you start seeing that you can actually put aside some money, no matter how little, you've taken the first step towards wealthy.

If you own a house, don't pay down the mortgage - unless you don't have anything else to put your money into. If you think that way, you are stuck and will remain stuck.

If you can refinance your mortgage to save money every month, do it. But you won't be "saving" that money. Along with the money you're no longer wasting, you're going to be investing it.

You're going to start a new, fun job: Making your money work for you instead of against you.

Later on, if you become great at your new job, you might even want to get a home equity loan on the house you own - and are paying down. The loan isn't there to spend stupidly, but to add  to your growing money-making capital base.

But we're getting ahead of ourselves.

If you have a 401(k) or some kind of retirement account somewhere, you're already on your way to being wealthy.

Forget about bankers and brokers and anybody telling you exactly what to do with that money. Take it over yourself. It's your money. If you leave it up to someone else to make you money with your money, you're making a big mistake.

It's your money, and no one will ever be more concerned about your money than you!

Very few retirement savings plans are worthwhile. Most of them are idle bets that being passive will get you up that mountain you want to summit. It ain't gonna happen.

If you have stocks in your retirement account, or a savings plan, take control of your money. Through self-directing your IRA - or whatever retirement account you have - you can diversify properly.

The Bloomberg article's premise was that the middle class is stuck where they are because they have no assets to diversify and their limited wealth is too tied up in their home and retirement accounts, meaning they are susceptible to swings in home prices and the stock market.

Gee, thanks for that insight. Who would have ever figured that?

If you take control of your stocks and look at your home as an asset, like your stocks or bonds, you can become the master of your own destiny. You can diversify, you are not stuck.

You can use your house as an appreciating asset - if it is appreciating. You can take equity out and diversify your "portfolio" and "hedge" your home's value, as well as your investments.

If you think your home is going to fall in price, you can hedge against that potential loss. If you knew before it fell in value, say back in 2007, you could not only have protected yourself, you actually could have made money in the downturn. I made a ton.

It's the same with your retirement money. If you were on top of it, actively shepherding it, not passively hoping it would all be okay, you could have gotten to the sidelines or hedged what you had. I did.

So how do you do all that?

First, take charge of your own money.

Second, educate yourself. Read a few books on how to invest and learn how to do it.

And third, you do it yourself.

I'll digress here. It isn't hard. It's just hard to find the right mix of books and mentors - to become educated enough and to feel confident that you can do it.

And remember: I was broke before I was middle class.