Did you realize that the richest 1% of Americans own almost 42% of the wealth in the U.S.? If that didn’t get your attention, how about this one? The wealthiest 0.01% of Americans (just 16,000 families!) have 11.2% of all the wealth. That means the average net worth of these top families is over $500 million each!
For some, these numbers get their blood boiling… “Why on earth do people need so much money? With all the starving people in this world, those net worth numbers are just ridiculous! We should tax those selfish rich people more so we can eliminate poverty!”
I’m sorry, but I don’t agree with this statement at all.
If we taxed the rich heavily, two things would happen:
- The poor would become more dependent on handouts, which would decrease our overall productivity as a nation (don’t just give them fish, teach them to fish! …which is what I’m trying to do with this article)
- The rich would be less inclined to earn more because of the heavy taxes (why work harder when the reward is so slim?), so innovation would be less frequent and the overall productivity would slump
Increased taxes will only feed the already-inefficient government and make our suffering nation worse off because of it.
The poor citizens of this nation believe that they deserve money they never earned. Instead of voting to heavily tax the rich, why don’t they just do what the rich did and get rich themselves? After all, 80% of the millionaires in this world are 1st generation rich!
8 Reasons the Rich Get Richer…And How You Can Too!
It is absolutely possible to start with nothing and become a millionaire in this nation. People do it every day! To be honest, the fact that the rich are getting even richer gets me excited because that just means great wealth is possible for everyone! Instead of being a critic, why not transform your thoughts and become a hero for your family? Do what it takes to become rich, and you’ll see the reasons the rich get richer live and in person!
So how is it that the rich just keep getting richer? Based on my research, there are eight reasons.
#1. Life Gets Cheaper
The richer you get, the cheaper things become. The main savings is with insurance. Do you realize how much money is being stripped out of your pockets each year for insurance?
For the 62% of Americans that have less than $1,000 in savings, they’re getting ripped off when it comes to insurance. Do you know why? Because if anything breaks, they wouldn’t be able to afford to get it fixed! So what do they do? They get insurance on almost everything!
The poor get poorer by purchasing loads of insurance:
- Appliance insurance
- Additional warranty coverage for electronics (TV, stereo, etc.)
- Burial insurance
- Life insurance
- Full-coverage car insurance
- Medical insurance
- Home insurance
Do you know what the rich do? They stop paying for half of the insurance items above. Do you know why? Because if something happens, they have the money to simply pay for the fix!
If their washer breaks, they have enough in savings to buy a new one. If their car got totaled, they would just shake their head at their misfortune… and then buy another new-used car with cash.
And here’s the big kicker. The rich don’t need life insurance (*gasp* – no life insurance?! That’s just so irresponsible!). Think about it though. If they die and have a net worth of $10 million, do you think their spouse and children would be able to survive? Ummm, yup. No need to have a $500,000 life insurance policy then, huh?
One of the reasons the rich get richer is because they stock up their savings account and cancel a lot of their insurance policies. Chances are that they won’t total their car, so why pay $2,000 extra in insurance each year on full coverage? They’re better off increasing their deductible and paying far less money every month.
- Stop buying insurance on non-essentials like your TV. If it breaks, do without it. The rich hardly ever watch TV anyway.
- Pay off your consumer debts and start an emergency fund. If you save up $5,000 and your car is only worth $3,000, then there’s really no need to put full coverage on it right? Increase the deductible to $5,000 and pay far less in payments each month. Beyond car insurance, self-insuring is almost always the way to go and it will save you thousands of dollars over the long haul.
#2. They Live Below Their Means
Have you ever heard net worth millionaires talking about how they can’t make all their payments?
Your likely response: “Of course they don’t complain about payments because they have millions of dollars. If I had millions I wouldn’t complain about my payments either.”
You missed the point. They’re millionaires because they live below their means. Not the other way around.
If you were able to invest $12,000 a year from the age of 25 to 65, you’d be worth $3.3 million. THAT’s the power of living below your means.
- Live frugally from the beginning. Ditch your debt completely and buy things with cash. If you don’t have the cash, you don’t need it.
- Don’t inflate your lifestyle with every raise.
#3. They Buy Assets, Not Liabilities
Number three on the list of reasons the rich get richer…it’s all about assets.
I run into tons of people that have invested in real estate. Some hated it, others loved it. But hardly any of them truly understood it.
Here’s the typical real estate investor. They save up $10,000, they buy a single family home with a mortgage, and they earn roughly $200 a month ($2,400 a year) by renting it out. Good for them.
Now what did they do with the earnings?
- One used the monthly income to cover boat payments.
- Another used the money to pay for his daughter’s tuition.
- The other guy blew it on weekend “fun”.
While some of these uses are more productive than others, are any of these people getting rich from their investment?
Not even close.
The rich take real estate investing to a whole new level. They take their $10,000, buy the house, earn the $2,400 a year in cash flow. They then use that money, pool it with earnings from their day job, and buy another rental house. Now they have $4,800 coming in each year. They do this again.
……and again and again!
Soon, they are earning tens of thousands of dollars each year with their income increasing exponentially each year!
One of the main reasons the rich get richer is because they salivate over increasing their number of assets while the rest of us climb just one rung of a 12 rung ladder and think we arrived.
Their assets earn an income each month, which then lead to more assets, which leads to even more income. The upward cycle quite quickly becomes unreal.
(Note: I like to invest in my rental properties with cash to reduce risk. It’s slower, but still more effective than covering boat payments!)
- Write out a list of assets that earn money
- Set an income goal. Plan to achieve it by purchasing assets and reinvesting the profits. Do this, and you’ll quickly develop a passive income.
#4. They Buy in Bulk
Want to know the reason the rich keep getting richer? It’s because they have the means to buy in bulk. I’m not talking about toilet paper here. That’ll save you about $2 a month. If you want to be rich, you’ll have to think much much bigger!
What if you were a real estate tycoon and you wanted to buy 10 more investment properties for your portfolio? In which scenario would you more likely get a deal?
- Buying individually from 10 different owners
- Buying all 10 properties from an investor going into retirement
The real estate tycoon will more likely get the deal by purchasing the properties in bulk! With a deeper discount, he’ll earn even more on his cash flow each month and he’ll be onto the next investment that much quicker!
- Start thinking about how you can make money with a bulk purchase
- Perhaps even start a small business by doing so. Setting up an online store is simpler than ever!
#5. Yearly Tax Planning
How much money did you get back in taxes last year? Almost everyone knows the answer to this question without having to think twice. But what if I asked you,
“How much money did you pay in taxes last year?”
This is when I usually hear the crickets…
Nobody ever has a clue! But isn’t this what’s truly important? If I paid in $20,000 in taxes and got $6,000 back, am I better off than the person that paid in $10,000 and got nothing back? Of course not! I still paid in $4,000 more than they did! The key isn’t how much you get back at the end of the year, it’s all about minimizing how much you have to pay in total.
The rich know this all too well. Heck, some of them even set up their income based on the tax code! Let me give you an example:
Jim is a wealthy man. He has $10 million in liquid assets and earns $420,000 a year. Each year, Jim is taxed 39.6% on his income since he’s in the highest tax bracket. Naturally, he’s getting sick of this.
To avoid this mammoth tax bill every year, Jim decides to contribute $10,000 into a pre-tax 401k (since he earns too much to max it out), another $3,350 into a pre-tax HSA, and another $20,000 to his favorite charity. This reduces his $420,000 income down to $386,650, moving him safely into the 33% tax bracket instead.
To help earn himself more money at a lower tax rate, Jim invests his liquid assets into dividend-paying stocks, which earns him an additional $200,000 a year at a tax rate of just 15%.
The rich continually look for ways to reduce their tax bill, which inherently keeps more money in their pockets! If you want to know the reasons the rich get richer, this one’s a necessary part of it.
- Go find your tax returns from last year and check how much you paid in. Then take a look at the details and find out why.
- Start contributing to your 401k and max out your HSA to limit your tax liability.
- Look up and understand the term, “capital gains“.
The wealthy don’t hunt for penny stocks and cross their fingers on doubling their investment. They also don’t blindly invest in index funds to earn a mild 7% year after year. Instead, they look for investments that they can be a part of and influence. One of the reasons the rich get richer….is because of direct investing.
By direct investing, I simply mean wealthy individuals that are actually meeting with potential business owners and listening to their ideas. If you’re a TV watcher, think Shark Tank.
The rich investor grants an entrepreneur time to pitch their idea. If the investor likes what he hears, then he’ll look more carefully into the details, and then offer the entrepreneur some funding in exchange for partial ownership of the business.
Rich investors love direct investing because they can keep tabs on the business at all time (after all, they often have controlling interest) and can make it a tremendous success with their experience and their connections.
- Get completely out of debt and stock up some cash
- Get to know bright individuals through universities and young professionals clubs
- Begin investing with small figures and learn as you go
Think about it. Let’s say you have a great invention that will automatically make your breakfast each morning, but your only friends work at the local factory and at a nearby car wash. How much are your connections going to do for you? Ummm…nothing.
Now, let’s say that you have that same idea for the automatic breakfast machine and your network of friends includes:
- the owner of three manufacturing companies,
- a design engineer,
- and an executive at QVC
Suddenly, your odd invention is starting to sound like a real money maker!
The more connections you make, the better your chances are at becoming rich. This is why the wealthy are often very friendly and likable.
This is also why people that win the lottery typically blow through all their money. First of all, they have no idea how to invest it, but they also have no high-powered friendships that can help them expand their wealth – only a bunch of broke friends that have hair-brained ideas…
- Always have a smile on your face. This is step number one to meeting people.
- Become a member of some clubs in your areas. This could be at a private golf course or an exclusive business club. Whatever you think would help you meet people of influence.
#8. Constant Learning
According to Tom Corely, an avid researcher of the wealthy, more than 85% of self-made millionaires read an average of 2 non-fiction books a month. The reasons the rich get richer is because of what’s in their office library at home. They’re not interested in the latest Harry Potter series. They want to know how to improve themselves and what they should do to improve their wealth position.
- Read. Start learning about personal finance, self-help, business, passive income, and anything else you’re interested in.
- Take notes. The best way to retain your new knowledge is to write down and re-read your notes from time to time.
In Summary: Reasons the Rich Get Richer
After reading these eight reasons why the rich get richer, it’s really no surprise is it? In short, the wealthy are simply doing things that the average person isn’t willing to do.
The average person works an eight hour day, comes home to eat and watch 4 hours of TV. On the weekends they do some yard work and then play until Monday morning. Then the cycle repeats itself.
The rich? They continually think of new ways to get wealthy and then act on them, over and over again.
If you don’t start learning and implementing the eight items above, then you’ll likely never get rich… Sorry to tell you, but that’s the reality of it.
Now you know the reasons the rich get richer. Will you be one of the future rich?
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.