In today’s post, I look at why the rich get richer, faster. How does their wealth outpace the wealth of the middle and lower classes? What do they have going for them that nobody else does? And, more importantly, how can you do the same for yourself? What do you need to know to build wealth? Do you have what it takes?
The Rich Really Do Get Richer
Do you want to be rich? Of course you do! That’s a silly question, I admit. But do you have what it takes? And by that, of course I mean, do you have the money?
Surely you’re familiar with the phrase, “the rich get richer.” Like any good stereotype or anonymous quote, there’s a little bit of truth to hit. For people with money, it really is easier to make more money. So do you have enough coins to make more coins?
There’s a reason the wealthy do fine when job loss is on the rise and the market is falling. They have income beyond a day-to-day job. They invest. And they don’t just invest in the stock market. They diversify. They invest in real estate, intellectual property, and private startups, in addition to the stock market.
The fact is, the more money you have, the less you need to gain. Wealth is a giant safety net.
The Wealthy Have More Wiggle Room for Failure
During the great recession, a lot of people cashed out of the stock market. Most feared losing more than they could afford to lose. Some of them lost jobs, and still had debts to pay. A bad economy is a major sting to the middle and lower classes, but it’s usually a mere inconvenience to the truly wealthy.
While the less wealthy were piling out of the stock market and selling homes, the wealthy were doubling down. They used their financial reserves to buy stocks and properties when the prices were low. And guess what? Prices went right back up. And the rich got richer.
I’m not blaming the people who sold. It’s always easier to know what to do after the fact. Some of them panicked. Others had financial obligations. I get that. But by abandoning their investments, they surrendered them to people with more resources. So when the market went up, the wealthy saw all the gain. Those who jumped ship, did not.
Responsible Wealth Can Last Forever
I’m not saying life is easier for the wealthy. After all, we all have our issues. But, if treated responsibly, the wealth of the wealthy will always outgrow the wealth of the lower wealth classes (with individual exceptions, of course).
For example, did you know the wealthiest 1% of American’s put 75% of their assets into investment accounts? This contrasts the middle class, who puts 63% of their assets into their primary residence. This means the wealthy have more of their assets exposed to higher-yielding investments. Primary homes are great buffers against inflation, but not the greatest earnings asset.
In fact, Robert Kiyosaki, famed author of Rich Dad Poor Dad, views your primary residence as a liability. You pour money into it, but it provides you no cash flow. Sure, it might go up in value, but there’s no promise of that. Plus, homes just don’t historically outperform other investments.
Keep in mind, I’m only referring to primary residences here. Investment real estate is a whole different beast.
More Risk, More Reward
So, because the wealthy have more money at their disposal, they can afford riskier, higher-performing investments. The fact is, the wealthy can literally afford to take the chances necessary to improve their financial status. Because not everyone is afforded this ability, the richer get richer, and the rest struggle to keep up.
To be clear, this isn’t a post about financial privilege. Far from it. I don’t believe in blaming or shaming people for what they earned or were given. Nobody benefits from that. But, nobody can reasonably deny that the wealthy are better positioned to take advantage of a low market. That isn’t to say those with less wealth can’t, but it’s relatively more difficult.
This Is Depressing Me, so Whats the Point?
So, have I bummed you out yet? This is, after all, a personal finance blog. I should be offering words of encouragement for building wealth.
Anyone can build wealth with the right time and personal sacrifice. Others might have a head start, but that’s no reason to not start for yourself today. The great thing about wealth is people want it for themselves, and they don’t tend to care if other people want it too.
Business is competitive. Games are competitive. Wealth is not. Your wealth does not affect mine, and vice-versa.
Wealth Inspires Me
I tell you all of this because this is what inspires me. While I enjoy reading about all facets of personal finance, wealth is probably my favorite. Building more income is good. Stressing frugality is noble. Wealth, though, is timeless. You can build something with wealth that can last generation after generation.
I don’t come from a wealth family. In fact, my childhood was aggressively middle class. My parents gave me love, support, kindness, encouragement, and anything else a good parent can provide. But gobs of money was not part of that list.
I love my parents for how they raised me, and I want to do everything they did for my own future children. But like any good parent, they inspired me to do more. I want to build wealth for my children. And their children. And their children’s children. There is a lot in this world to be insecure about. I don’t want money to be one of them.
How Do We Become Wealthy?
So, how will I do this? By acting like I’m rich. By this, I don’t mean spending a lot of money, but practicing the techniques used to earn this money.
If you want to be better at something, find someone who is great at it, and learn from them. Read their work. Listen to their teachings. Do what they do, and understand why they do it. They didn’t become great at what they do by chance. They worked for it and learned what works and what doesn’t.
I’ve read quite a few books on building wealth, and one of my favorites is still Dr. Stanley’s The Millionaire Next Door. Because of his work and other research I’ve done, I know what I need to do create a wealth-building mindset.
- Work towards long-term goals, not short-term goals
- Acknowledge where I’m weak and either improve or outsource
- Go all-in with projects that utilize my personal strengths
- Diversify, in both life and finances
- See the opportunity when others panic
- Minimize taxes
- Favor my savings rate over my return on investment
- Live below my means
- Focus on financial independence over social status
I’m sure there are others, but these will do for now.
Because wealth is part of personal finance, it’s more than just numbers. It really is personal. That’s why half of the points above aren’t about dollars or business acumen. They’re about growing as a person and knowing how to take advantage of what I have to work with. That’s what I’m going to do. Not just for me or my wife, but, for our legacy.
So what do you think about building wealth? How are you going to escape the cycle and build your own? Let me know in the comments below!
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