Why The Rich Get Richer?
The rich get richer because they do what the 99% of people don’t do. And somehow they are “evil”, right? The wealthy people get richer because they make money work for them, instead of them working for money.
No matter how hard you work, we all have a few hours per day to operate before rest.
The rich get richer by understanding what money can do for them.
Because money operates 24 hours, 7 days a week, tirelessly. So why not make it to work for you?
Take $1 dollar, double it, now you have $2 dollars. That is 100% gain, which means it took 100% of work (energy) to double your money from 1 to 2.
Now take those $2 dollars, and eliminate half, or spend half of it. Now you have $1 dollar. That’s 50% loss.
Wait, so I went from 1 to 2, then back to 1 and the percentages aren’t the same? It took 100% of work to double it, yet it took a quick 50% to lose it all back to 1? Yes, reality is harsh, and mathematics does not lie. This is where loss aversion comes in, where it hurts more to lose, than it feels good to gain. And the majority of people seek gains than prevent and protect their losses.
Here’s a further in depth analysis by Investing.com on the mathematics of gains and losses.
Assets and Liabilities
Assets put money in your wallet, liabilities take money out of your wallet. Yet the majority of people think that their mortgaged home is an “asset”, when in reality it is a liability. A home is a couple hundred thousand dollars in debt, PLUS interest, keyword here… interest. It takes money out of your pocket, plus making the bank some profits through interest. Sure, there’s long term appreciation of the home but is it making you money now?
Think of it as a machine. This machine does one thing, prints money like a computer printer. You can buy the machine, and start printing money. Or sell the machine and acquire the cash to buy a faster and larger printing machine.
But what do the majority of people do? Sell the machine and go to vacation, buy a newer vehicle, spend on a newer home, or purchase more stuff that doesn’t print you money. In the contrary, it ate the money. But the rich are evil!
There are exceptions like tools that aid into business growth, like plumbing accessories, computer software for employee management, machinery, etc. But for the most part, liabilities are purchased more often to fulfill emotions and satisfaction of ownership of such item, because owning assets, is boring, except for those who see the long term outcome of that asset.
Consistency and Compounding
One does not plant the seed and leave forever, like the majority of people do. You plant the seed, then you water it, give it soil, minerals, etc. Most do maintain it but give up when the twig barely sprouted. That twig will give you nothing. But those who kept it until it formed to a tree with a large trunk, will give them major amounts of fruit, a fruit that will then give them exponential amounts of seeds as well.
The rich get richer due to compounding. Compounding is one of the greatest tools the rich have, making money work for them in exponential quantities. This is where compound interest comes in, where governments, banks and world powers use becasue they know the power of it.
This means, quit saving for retirement, the dollar loses its value daily, monthly and yearly, and even if it doesn’t, its dead money, collecting dust. Put money to breathe, cycle it, move it, make cash flow.
Notice the orange line, how putting cash under the bed, or leaving it in your “savings” bank account (with minuscule interest rates) is linear, boring and a waste of time. Now in the age of the internet and computers, where money is digitized, you don’t have to place 10% of your income (income as employee, self-employed, business owner or investor) aside manually in cash. You can automatically send 5%, 10% or even 20% to accelerate wealth into online brokerages for stocks, bonds, ETFs, cryptocurrencies, etc. to invest in the long haul. There will be a moment of laziness and procrastination, (which the rich less have versus the general population) where that single missed self payment can drastically diminish your future gains, so why not automate it? You see, people are paying interest to make others rich, instead of paying themselves interest to make themselves rich. But rich people are evil.
Paper assets such as stocks, bonds, ETFs, or cryptocurrencies, precious metals, renting out real estate, or rare art are example asset vehicles that can be used to accrue interest. Even your 9 to 5 job as an employee is also income to fulfill your goals. Isn’t that what 401k is all about? Sure, but that’s another topic best explained by Wall Street Physician, on how active management funds are more expensive and rob of your future time and wealth versus passive management funds that not only are cheaper but have performed better returns in the past.
Pay yourselves interest, and be consistent. Nothing is a get rich quick situation, it takes time, patience, discipline and consistency, which the rich have. The rich get richer by planning the long term strategies through time. It is the most valuable asset we have. Yet what does the majority do? Throwaway their precious time for a paycheck.
Good Debt and Bad Debt
Taking a mortgage, and rent it out just above the mortgage payment? A good loan, because your putting money to work. It is cycling and flowing profitably, and controlling an asset that is worth a couple hundred thousand dollars with just the down payment.
Taking a loan to purchase the latest SUV, instead of paying cash on a 10 year old one that functions just fine? A bad loan becasue that SUV will not place money on your pocket. Any brand new vehicle today is well known to be overly priced from factory. It devalues enormously once it is driven past the dealer lot. This does not take into consideration a vehicle for business and work, as it may be considered a tool and an investment.
Student loans? Sure, depending on the field of study, the returns can be fulfilling. Although more and more fields of “study” are becoming useless and worthless in the real world. The lack of jobs and the devaluation of the currency suggests that even doctors and engineers have to work endlessly to pay off the exorbitant amount of loans.
And the majority people will do just that, purchase the latest items due to the shiny object syndrome, when they have no cash flow to justify these items. The rich get richer becasue they prioritize cash flow. Assets comes first, then pay yourself when it is affordable through cash flow, not by savings over time.
Multiple Income Sources
The rich get richer becasue they have multiple income streams, and not just one. Paper assets like stocks, bonds, indexes or ETFs. Business revenues as owner or as a self-employed. Real estate income by renting out your properties, etc. One thing goes wrong, and your worries are minimal, as you have other streams to sustain you. Diversify your gains and income, don’t just spend it on liabilities. Recycle your profits back to your business, spend it back in, and grow your assets that are making you money.
If there’s a time where stocks are shaky and may suggest a large correction, or yet, a crash, move these assets to other vehicles. These vehicles can be metals, insurance derivatives, real estate, bonds, or cryptocurrencies (despite the unpopularity and lack of mathematical understanding of crypto). Being stagnant in your overall portfolio of assets is the bare minimum you can do. But actively moving them based on economic weather and health separates you from the rest of the general public. Do average things, and your returns become average. But being average is comfortable and non productive, leads to complacency and procrastination.
The rich get richer because they were either raised, or self educated to handle money, protect valuable assets and learn to learn beyond what they already know. Sure, there good ways and bad ways to acquire money. There are plenty of good and bad people that acquire money ethically and unethically. But that topic is beyond the scope of this article. Rich get richer becasue they do things beyond the average. Ignorance leads to poverty and destruction. But try educating the public about financial knowledge without being scoffed at, or without listening to the words, “rich people are evil and greedy”.