Personal Finance 

Define Class with Financial Planning Time Horizons

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Grandfather & GrandsonI was talking to reader Mike Cannon, who lives a frugal lifestyle and runs a small business called Ascent Solutions Group in Maryland, about Aldi (more on them when I get a chance to check one out) when the conversation shifted off to an idea one of his professors at Maryland once told him about class (as in middle class, upper middle class, etc). I think it’s a very different and helpful way to look at class and how it should be defined, rather than how it is defined today (i.e. poorly).

His professor said, and I’m paraphrasing, that it’s far better to define class by looking at their financial planning time horizons than anything else. The higher you go in the class spectrum, the farther out the time horizon is.

At the low end of the extreme, the extremely poor are thinking only as far as their next meal. As you move up the spectrum, those living from paycheck to paycheck have a time horizon of two weeks (or their paycheck frequency). In both classes, the concept of saving is difficult because income is less than or barely meeting their expenses.

The middle and upper middle class are looking a few years to forty years into the future. They’re contributing to their retirement plans, contributing to their kid’s 529 plans, saving for their first/next home, or saving for their first/next car. Saving is possible here because income has exceeded expenses to the point where you can save for the future.

As you get even farther up the class spectrum to the upper class (and whatever is past that), you begin seeing people planning for their grandchildren and their grandchildren’s education. Once you have met your needs, you begin thinking about your future and your children’s children.

I think that’s a far better way of defining class than any income ranges or net worth figures. It’s about mentality, rather than income and I believe it’s a far healthier approach towards class than talking income. What does it matter being upper class if your expenses force you to spend the vast majority of your income? One stretch of bad luck and you could lose it all (just think about any number of bankrupt celebrities) and then you’re no “better” off than someone in a “lower” class. In fact, I would say that the stress of living on the edge of disaster is far worse than the enjoyment you get out of living in a huge house or driving half a dozen fancy cars. I’d much rather be happy living the simple life within my means than feeling the pressure to produce to sustain an expensive lifestyle. I suppose that’s why they say money can’t buy happiness.

What do you think about this definition of class?

(Photo: indieink)

{ 5 comments, please add your thoughts now! }

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5 Responses to “Define Class with Financial Planning Time Horizons”

  1. Rob Carlson says:

    Excellent concept. Here’s an ancillary thought:

    If you are in a lower class and you expand your time horizon and put away those extra pennies to your retirement/kid’s education in ten years instead of saving to buy yourself something nice in the next few months, you are moving yourself up in terms of success in spite of your actual income.

    Likewise, if you’re a sports or music star who has millions of dollars but only thinks a day or two ahead to the next big party or new car, you will soon be parted with your money because you are acting as if you are already poor.

  2. The problem with this characterization of “class” is that the government will not look at this way, because what matters most to the government is income. Even if a higher income earner is living paycheck to paycheck, tax treatment is the same.

    A related issue in the class warfare position taken by many politicians is the incessant reference to “working families.” When these politicians use the phrase “working family” they intend to exclude those who make a lot of money, or who have positive net worth, as if those folks don’t actually work or have families they are supporting.

  3. Caleb Nelson says:

    That’s an incredible way to define “class”. I had never really thought about it that way before until reading this article. I heard once, that you are really dreaming when you begin to dream about life after your death. I can’t wait until I have enough progress to push off dreams onto my future grandchildren.


  4. living on fumes says:

    As I started to read this, my first thoughts were “OMG” and “WTF?” It came off initially as rather, shall we say, classist.

    But if you look at it as a function primarily of income and secondarily of character, there’s a case to be made for letting those working at the bottom of the economy keep more of what they earn, before cutting taxes for those at the top.

  5. J D Walling says:

    The short ans. is VERY LITTLE. Though by soc. standards in Euro. it makes better sense as 1 defines “happy.”

    In fact, it’s the kind of “thinking” that teaches the masses to love their servitude in this moneyed aristocracy (plutocracy).

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