September 4, 2008 - "Why the rich get richer"
Summary: I read an article today in Reuters headlined: World's Richest got even richer last year. For example, the top 1% of all households owns 35% of the world's wealth. This used to anger my high school economics teacher, Mr. Dwyer. Instead of getting upset that the rich are constantly getting richer, why don't we strive to be like the rich and see why they become richer. A few simple habits can put you on the path to one day being that top 1%.
We always read why that the rich are getting richer; in fact, we read that the rich are getting richer faster than everyone else. In this political season, one of the things we hear Barack Obama harp about is that the gap between the rich and the rest of us is too high, but how have did the rich become wealthy. It's no accident.
First, rich people always have money to invest with. By having money available, they can afford to invest. We can replicate this by always saving at least 10% of our income every year. But, you can't invest if your in credit card debt, and you can't invest if you don't have money. Having money is a crucial first step to being rich. You need money to make money.
Second, normal people when they money go shopping. They buy a new fridge, a new tv, a new dress, a new iPod, or even a new car. The problem with this is that all of these things lose you money. Every item is worth less the second you buy it, take it home, and use it. A car is worth 20% the minute you drive it off the lot..same with your tv and iPod. Rich poeple on the other hand take their spare money and invest it. Whether they invest it in bonds, stocks, real estate, or precious metals, they are investing in something. There money is always moving between investments and they are always making new investments. This allows them to make money. Even in bonds where they may be making a small amount of money, at least rich people are not losing money! You too can be rich if you take your savings and start investing it. If you don't beleive me, go and read my previous entry on the power of compount intereset.
Remember, to become rich, you need to save money and buy assets that appreciate. You can't make money buying things that immediately lose money. Having money also allows you to buy assets in times of distress. For example, the average person cannot buy houses and take advantage of these huge property declines of 30+%. However, rich people have the money available to take advantage of the downturn and buy real estate, thus making them immensely richer when the market turns.
