I can't predict what will happen, but something is very, very wrong.
- When you see record unemployment and all-time highs in the stock market at the same time, something is wrong.
- When you see an "epic collapse of demand" yet people are starting to talk about going back to normal, something is wrong.
- When you have a global pandemic (which disproportionately affects communities of color) and people are starting to fill bars + restaurants back up, something is wrong.
I'm planning for things to get worse.
I hope I'm wrong, but I'd rather overreact than not act. It's time to prepare. And I mean really prepare.
This is really hard to hear because we have a cultural belief that "things will work themselves out." Our movies end with two people holding hands, walking off into the sunset. One of our strongest American beliefs is that tomorrow will be a brighter day.
That belief is one reason America is such an amazing country — but it can also warp our sense of risk.
At any moment, each of us is evaluating the risk around us:
- The light is yellow — should I stop or go?
- That street is dark, but it will save me 5 minutes. Should I walk down it?
- My kid is walking on the ledge...should I stop her?
In good times, we can afford more risk. Should I stretch for those monthly payments? In a normal economy, you can probably pull it off. But now, things are more precarious and the risk calculus has changed. If you lose your job, you're not just looking for a new job...so are tens of millions of other people.
Here's what's going on: As risk changes, we rarely re-evaluate our actions.
Right now, we're starting to see more people relaxing restrictions, more people going out. We understand more about coronavirus than before and we're starting to understand when it makes sense to loosen restrictions. But the top-line numbers themselves don't reveal the full story.
Same with the economy. You start to look at the numbers beneath the numbers of the economy. Employers added new jobs last week...but millions of Americans are skipping payments. People are starting to go to restaurants more...but coronavirus is hitting more people in different states now. I hope there are more benefits. I hope there's a vaccine soon. But even though the stock market is UP, my risk calculus is much more conservative than in January.
I expect we'll see a large number of households that thought they were safely in the middle class be forced to reevaluate their status. The mortgage and car payments and loans — safely managed during good times — can become suffocating and overwhelming in an instant.
A few months ago, I shared a new way to think about the "poor, middle class, and rich" — a better framework for understanding how money impacts our lives. I called it The Trapped Class, The Treadmill Class, and The Freedom Class.
Today I wanted to revisit it. And then show you how you can take action today.
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"Are you middle class?"
The way we think about economic class in America makes no sense. We divide society up into the poor, the middle class, and the rich, with one big problem...
Everyone thinks they're middle class! Nobody wants to say "I'm poor" or "I'm rich" — but people routinely say, "I'm middle class," even when they earn multiple six figures.
And God forbid you actually tell someone who earns $300,000 that they're actually not part of the middle class anymore. Suddenly, you're going to hear them ranting about their HCOL city, taxes, cost of kids' activities, etc.
They may be right about all those high expenses...but according to the poor/middle class/rich framework, they're still rich. Yet to them, it genuinely doesn't feel like it.
This is why we need another way to look at economic class.
Rich isn't simply about money. There are people earning $500,000 a year and drowning in bills. There are also people making $50K who feel happy and free. Income and net worth is incomplete.
What's really important is LIFESTYLE.
A Rich Life is about FREEDOM and FLEXIBILITY. You can be rich on $50,000/year if you've created a life where you can do the things you love — whether it's spending time with family, eating sushi every week, or teaching drawing.
Yes, of course, more money makes it easier. But what's important isn't the money alone — it's the freedom and flexibility.
That's why I proposed this new framework for thinking about class, one built on lifestyle, which you can intentionally design for yourself.
Note: These classes don't justify massive inequality and systemic problems, which are extremely real problems. This framework simply provides a back-of-the-napkin "lens" through which to view your financial state.
See if you can spot yourself in the framework below...
TRAPPED CLASS: In The Trapped Class, you're stuck working paycheck to paycheck, one accident away from financial disaster. There is no "buffer," no time to think ahead and plan for the long term.
TREADMILL CLASS: People on the treadmill have a decent job and a small bit of savings. If you live in America, the treadmill isn't bad — The Treadmill Class has a roof, a car, internet, pizza delivery any time, and they can take a vacation once a year. But they're stuck, and getting off the treadmill is more of a dream, not a plan. They usually have some credit card debt. They aren't saving enough for retirement. They're likely to spend most of their lives working their job just to stay afloat.
FREEDOM CLASS: These are the people who have the ability to do what they want, when they want. Money is no longer a major constraint in their lives. In fact, cost is rarely the first thing they consider. More often, it's time, quality, experience, relationships, or simply "I want it."
I'm not just talking about billionaires and trust fund babies, even though they get all the spotlight. There's actually a growing wave of people who are living this life by building small, automated businesses that support their lives.
The key insight here: It's not simply about how much money you have. It's how much FLEXIBILITY and FREEDOM you have.
Rethinking The Freedom Class & coronavirus
In normal times, most of us would love to be able to do what we want, when we want — without focusing on cost.
But when a crisis hits, like coronavirus, having that flexibility and freedom can be more than a "nice to have" — it can be the difference between safety and risk.
What's it like to be in The Trapped Class when a disaster hits? Or The Treadmill Class?
I asked people living paycheck to paycheck how coronavirus changed their views of money. One 32-year-old woman from Australia living on $20k/year summed it up well:
"I would be struggling a lot if the government hadn't doubled one of the support payments in response to the coronavirus. My normal tricks for getting by, such as public transport and buying on special, were taken away from me. I didn't have money for initial outlay like masks.
Basically:
- it has shown me that I'm placing myself at risk, both financially and health wise, by not being more strategic with money. A lot of this hasn't been my fault as I wasn't well. This year though I could have been more strategic with building a business and how I spent money.
- Having back up savings and resources are a lot more important than I would have believed. Others may not always be there to help out."
Are you dependent on "tricks for getting by"? Is your financial situation putting not just your money, but your health at risk?
It is if you're in The Trapped Class. And a disaster like coronavirus only highlights how trapped you are.
Or take this reader outside Washington DC making $40k/year...
"I've been so obsessed with getting rid of debt that I had lost sight of saving money so I don't go further into debt. Even with coronavirus here, it's so hard to get myself into a saving mindset. I almost put myself in the hole again with unexpected car expenses. The importance of a full and detailed plan is so essential for times like this when you start to panic. Your brain goes into survival mode and you access to rational thought.
I definitely made some impulsive financial decisions in a panic that I wish I could take back. I need to sit down and write out my financial plan and include worst-case scenarios so I am prepared in the future."
I heard this story again and again — being one accident or misstep away from disaster, or taking one step forward and two steps back.
This is life in The Treadmill Class, which can seem fine day to day...until disaster hits. One small expense, like a medical bill or car repair, becomes a large, cascading problem. A series of large setbacks, like coronavirus, can drop you into The Trapped Class.
I also wanted to hear what people in The Freedom Class have been experiencing.
I'll give you an example that one of my students DM'd me:
