Tuesday, December 30, 2008

The Middle Class Split

There is a lower middle class and there is upper middle class, both in terms of actual financial standing or by psychological mindset. People think about their expenses in two ways:

Bottom-up Thinkers - thinks about their spending in terms of a collection of small purchases. I spend money here and there and eventually it adds up. When trying to spend less, they make cuts beginning with the smallest purchases. They make many small changes. They'll choose generic products in categories that don't interest them and cut services they don't need.

Top-down Thinkers - think about spending in terms of all of their assets, starting from the largest expenses and working downward. Cuts are made at the highest level possible and often have a projectable savings. I cut out the biggest things that i don't need.
When trying to spend less they cut a few big expenses so they know exactly how much their saving. They make one or two big changes. Sell a car, spouse goes back to work, no vacation.

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