How Did The Top 400 Wealthiest People Get So Rich?

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Do you have any idea how much the 400th wealthiest person in the world is making per year? $138 million. That’s right. That’s $138 million in a single year, which means that their net worth is most likely in the billions. How in the world does a person get so rich? What could they possibly be doing to earn so much money each year? One thing I know for sure is, they probably aren’t worried about PPI insurance (like ppiclaims.uk.com)…

Yahoo! recently wrote an article about how the rich keep getting richer. According to the IRS, more than half of the typical earnings are not coming from regular income, but from capital gains! In other words, the majority of the income from the wealthy is made by their investments such as stocks or from property.

As for the regular income (from the top 400 wealthiest people), less than 10% of their overall earnings came from good old fashioned wages. With these percentages, do you truly realize how the wealthy are earning their money – through passive income!

More than likely, these wealthy individuals just didn’t roll out of bed one morning and find out that they were stinking rich, they had planned for this for the past 20, 30, maybe even 50 years. From the very beginning, these people have been investing their money into the stock market, into properties, or maybe even into businesses. Their money didn’t go toward boats and flashy cars back then, it went toward their future, and now look at where they are!

The Average vs. The Wealthy

I have seen comparisons about how wealthy individuals live vs. the regular Joe across the street in your neighborhood. But, I’ve never seen the comparison for how they lived 30 years ago when they just started out. How did one of them get to the point of earning millions of dollars per year, and the other is barely making their mortgage payments?

Let’s assume that both of these men graduate from college and land a $50,000/year job. Throughout the next 30 years, both of them earn an average increase of 3%. The only real difference between them is their vision for the future:

Average Joe

  • Graduates with $30,000 in debt
  • Buys a brand new $25,000 car out of college as a “congrats” to himself
  • Buys a new house soon after starting his job because he can make the payments. It’s a $200,000 house with a $1,200 payment for 30 years.
  • When Joe pays off his school debt, he decides to continue the payment, but now it’s towards a boat

Millionaire Mel

  • Graduates with no debt
  • Gets by with his beater college ride until he can afford to pay cash for a gently used one
  • Buys a modest house for $80,000 and pays off the mortgage in just 4 years
  • When Mel pays off his house, he beefs up his investment in his future

After 30 years, Joe has finally paid off his house, which means that his net worth is now $200,000 (the value of his house since he always purchased everything else on payments). For many of us, a net worth of $200,000 is quite a lot. In fact, when you check out how Joe got there on the chart below, it looks somewhat impressive.

This is the route of many Americans. As long as they never refinance and extend their house payment terms, they’ll own their home free and clear by the time they’re 52 and it will be one of their only investments. Unfortunately, this is nowhere near the amount of money that’s necessary for retirement, and to start saving at the age of 52 is obviously too late.

Now, as we described above, Millionaire Mel took a different route. He went through college without debt, paid off his house in a short time frame, and then he invested his remaining earnings with vigor. Check out his net worth when it’s overlaid on Joe’s.

Can you even see Joe’s net worth on that chart? Just barely. At the end of 30 years, Mel is worth nearly 2 million dollars! They both started with the same humble beginnings, but now at age 52, Mel can easily retire and live without worry. Since his interest now earns him an average of 5% per year, on his $2 mil, he could spend $100,000 a year and his net worth wouldn’t go down. Sounds pretty intriguing doesn’t it? This is how the rich keep getting richer. Investments and passive income.

How are you choosing to live? Are you Average Joe or Millionaire Mel?

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Investing Money Retirement

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

24 Comments

  1. One thing about all this men was that they were ordinary people like me and you,which means any one of us can become rich and wealthy if we choose to

    • That’s right! I just takes a decision and some consistent action!

  2. I read that article by Derek Thompson. It was so inspirational. I started investing (aggressively) in March and I can honestly say that patience, smarter investing, and a little bit of luck can make me head high on that list.
    Jai Catalano recently posted..Photo Session With Fitness Trainer Corinne Tate 

    • That’s awesome that you’re starting to invest aggressively! You definitely won’t be sorry later in life!

  3. It would be interesting to see personality test results of those in the top percentage. Also, I’d love to buy an $80k house and pay it off quickly, but in my area the low end is still $130k for a dump. House hunting is frustrating!
    Jessica @ Budget for Health recently posted..Happy 25th birthday to my love

    • Yeah, house prices are different all over, but just shoot for that semi-fixer-upper – those seem to be the best value, especially if you or your husband are handy.

  4. They didn’t start at the same place – one had no student loan debts. It’s not possible for everybody to graduate without debt, which is a huge deciding factor here.

    • Haha, yes, you’re right. They started in the same place before college though! 😉 With the mindset of the Average Joe though, if it wasn’t student loans, it would have been a boat or another car or maybe even a bigger house. Whatever the case, Joe’s assets would have been purchased with debt, and it would have set him back tremendously.

    • Lol. Mel and Derek are quite similar aren’t they? 🙂

  5. Rich people approach their spending conservatively, but they constantly have their money working. I constantly look at opportunity costs when I spend money. Why repay a loan at 2% when I can put the money to work and earn 10% for example.
    krantcents recently posted..It Pays to be Skinny

    • I like the idea of getting a larger return elsewhere and forgo paying off the debt, but the only problem is, paying off the debt will make you money guaranteed. The investment has no guarantee. In fact, it could lose money! When the wrong decision is made, this is how the poor keep getting poorer!

  6. Another big factor not mentioned is spouse and children. I can have a ton of financial goals, but if the decision to have a family and invest in the future generation of my children is a goal, then obviously this kind of financial prowess is less likely to be a reality. I definitely agree with the part about what you do with your time away from the typical working day. Yet, with a large family, time flies by and the unexpected becomes the new norm.
    Having said that, investing early and letting it grow has always been the way to go. Like the article states, starting at 52 is not the way to go. Keep up the great work on chipping away at the morgage! Imagine not having that payment and only being 30ish years old?!
    Kevin recently posted..Discipline part 3

    • It’s true, these goals are much more difficult if you have a spouse and children. There are still some things that can be done. Perhaps it’s as simple as spending less in a single area – like fast food – and investing that money toward a solid index fund.

    • Assuming that houses keep up with inflation – and I assume they will again in the future – then that $100,000 will be worth exactly the same in the future. I do get your point though. With the other investments, perhaps the $2 million will be worth something like $1,000,000 in 30 years.

  7. Thanks for this article Derek, makes me feel like I’m going somewhere even if right now I feel like it’s taking a long time. 🙂

    • Just keep thinking 20+ years ahead and the day to day goals will seem a little easier. Keep it up Andrea!

    • Very true. I’ve really come to that conclusion as well. Sure, you can be a millionaire with long-term investing, but you’ll never be on the top 400 list with it. Good luck on your efforts!

  8. I graduated from university with no debt but I bought a brand new $24000 car. I was living at home with my parents at the time and not paying for rent and groceries.

    Fast forward a few years later, I start to look into living more frugally, investing and saving more of my hard earned money. I may not end up being a Millionaire Mel, but I hope to be somewhat close!

    • Sounds like you started out a little rocky with that new car purchase, but I bet you’re back on track now! Start investing now and you’ll be Millionaire Mel for sure!


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