Category Archives: Rich vs. Poor Series

Weakness

February 22, 2015Rich vs. Poor SeriesSolomon

Poor people are trained to hide their weaknesses. In low income areas theft, robbery, assault, and murder are common. In order to stay safe one must never show weakness. Rich people have more freedom to be themselves without fearing for their life. As a result, poor people are strongly discouraged from learning vulnerability while rich people have the opportunities to. Because vulnerability is key to how you make friends (How to Make Friends), poor people have a harder time making close friends than rich people do.

Read more about articles in the Rich vs. Poor Series here.

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Socioeconomic Mobility and Friendship

November 14, 2014Friendships, Rich vs. Poor SeriesSolomon

The purpose of this post is to highlight the difficulties in maintaining friendships when you wish to change your socioeconomic status and detail the trade-off decisions that are occurring.

“You are the average of your 5 best friends” is a common phrase based on the idea that the people closest to you have the greatest influence on who you become. Therefore, if you want to move up the socioeconomic ladder, your goal is to make sure your 5 best friends are where you want to end up, and not where you currently are. So you avoid being friends with people in your income bracket and you seek out the rich. This behavior introduces several problems: 1. because the people around you don’t share your background, they think and act differently from you. This makes it harder to be friends with them (but not impossible: with communication and relationship skills it can be done). 2. If you stick with them and learn their ways, it becomes harder to be friends with people who do share your background because your background has been replaced with the value system of your new friends. This causes problem 3. you have difficulty being friends with your income bracket because you’re social skills are different, and 4. you have difficulty being friends outside your income bracket because they may do things that cost way more than you have budget for so you can’t participate in activities, making it harder to maintain friendship.

Problem 3 has potential to do very bad things to you, for instance it can tear your family apart because while you have become more like successful people, your family has not and so you find it more difficult to relate and be friends with them. The family also embarrasses you in front of your richer peers because your family has a different set of values and social skills.

Trade-off decision and problem 5: When you learn the ways of an income bracket above you, you can either spend the next few years teaching your family and lower income bracket friends how to move up, or you can spend that time moving up even higher on the income scale. Problem 5 is poignant because what’s really happening is the following: You can either stay emotionally close with your family and friends and move them up one or two income brackets over your lifetime (an income bracket to me is 10x increase in income. From $1,000 per month to $10,000 per month), or B you can alienate them from distracting you on your path to moving up multiple income brackets, perhaps achieving $1,000,000 per month at the cost of spending time with your family and friends. Which do you want? To provide time, or money?

5B can be a road of Ambition, Loyalty, Disappointment, Sadness.

“A rolling stone gathers no moss” is credited to Publilius Syrus, who in his Sententiae states, People who are always moving, with no roots in one place, avoid responsibilities and cares. Another interpretation equates “moss” to “stagnation”; as such the proverb can also refer to those who keep moving as never lacking for fresh ideas or creativity. -Wikipedia

Friendship teaches us to hang out with people we like, and to accept them as who they are. With a socioeconomic mindset, to move up the ranks, you must learn to judge, criticize, and be selective with who you hang out with, according to what you want to achieve. (Major Categories of Relationships Business vs. Personal). Furthermore, you treat every opportunity as a business opportunity and every personal interaction as a wasted business opportunity, a mentality which gets in the way of spending the quality time necessary to make friends. Many people sacrifice Emotional Health to squeeze out more time in their day for achievement…this is a major reason why many successful people are either very lonely, depressed, and sad, or just bad people with no emotional skills.

Problem 6. As you move up the income levels, your mentors need to change if you reach or exceed their achievements. However, the idea that you should always trade up for someone better only works in the short term: in the long term, both of you will grow to be much more than what you started out as (hopefully), and you’ll definitely grow at different speeds. As such, to become really good, it’s more important to find someone to work with long term, than to find the best option short term.

Friends as an Asset Class – An Investor’s Take on Friendship – Friendship as an indicator of Socioeconomic Mobility

People are constantly changing, and as they change they want different things. As the world changes, the way they get what they want changes, as well as who they get help from. What happens to a relationship when two people are no longer “related?” More often than not, the relationship weakens and fades, with new ones to take their place. This can be seen often when it comes to socioeconomic mobility. However it does not have to be the case if you take the initiative to maintain friendships.

All these problems can be overcome, they are just difficult to.

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Perspectives on Wealth

August 20, 2014Rich vs. Poor SeriesSolomon

There is a difference between having, owning, and controlling, and distinguishing between the three is important to understanding what true wealth is, and not getting caught up in fake wealth. Let’s begin with a story, cover the definitions, and then summarize.

Bob has a house, a car, and a watch that all together have a market value of $2 million. Bob has paid off $600k and still owes $1.4million.

Tony has a house, a car, and a watch that all together have a market value of $1 million. Tony has paid for all of it.

Sally has a house, a car, and a watch that all together have a market value of $2 million. Sally has paid off $500k and still owes $1.5 million.

Who is the wealthiest?

Having means you have current legal rights to it, but not complete legal rights. What does that mean? I take a mortgage for a house. This gives me current legal rights to it, but if I fail to pay my bills I will be foreclosed upon. Therefore, I do not have complete legal rights. Government does not count in this definition, since you can never (presumably) have more legal rights than the government (hence why property taxes and government seizure don’t cause this definition to change).

Owning means you have complete legal rights. I’m not leasing this car, I paid it off: I own it now. I paid for this banana and I’m going to have my way with it! (Your thoughts are your own, friend).

Controlling means you as part of your identity have the power to do with it what you want and so it’s basically as if you had full legal rights to it (de facto) even though you may not actually have full legal rights (de jure). Control can be introduced with bullying: I take a soda from you. You have legal rights to it, but for all effective purposes I now control the soda because I’m physically stronger than you and you’re afraid of me. Or I don’t own any shares of a company, but I can influence over 50% of the shareholders to trust my opinion, so for all effective purposes I control the company.

Given these definitions now, we can see that Bob may appear to be wealthier than Tony because at face value Bob has $2 million of assets, but Bob does not own $2 million of assets. In fact, Tony is richer because Tony owns all of his $1 million of assets. What this means is that for you in real life, if you meet someone with cheap items, and you meet someone with expensive items, contrary to your initial impression, the one with cheap items may be wealthier. What about Sally?

Let’s say Tony and Bob’s net wealths are tied to the assets listed. Sally on the other hand is, overall, worth $10 million because her money is invested all over the place and working for her. She minimizes her cash in non-revenue generating assets like a car, a watch, or a house that is rented to herself. On the surface, Sally looks as wealthy as Bob, and if you asked them how much of the assets you can see they owned, Bob would look richer than Sally. But truthfully, Sally is the wealthiest: Sally controls her assets. As part of her identity (net wealth of $10 million) she can convince (bully in the example above) any bank to give her a mortgage or loan for $2 million and therefore then control $2 million in assets even though she doesn’t legally own it completely–she does indirectly because she is wealthy enough to buy outright any of the items, but chooses not to because it’s financially smarter to put the cash elsewhere.

Summary: Don’t get caught up in impressions of wealth. If someone is displaying expensive items, either they are financially dumb (Bob) or exceedingly rich (Sally). If you, like most people, are not exceedingly rich, make sure you know what you’re doing when you choose Bob’s lifestyle over Tony’s: the decision making process for that is too complicated to cover here and is highly subjective.