You’ve probably heard the phrase “the rich get richer”.
There’s (surprisingly) even a Wikipedia page on it with background and details.
Here are some of the highlights:
“The rich get richer and the poor get poorer” is an aphorism due to Percy Bysshe Shelley. In A Defence of Poetry (1821, not published until 1840) Shelley remarked that the promoters of utility had exemplified the saying, “To him that hath, more shall be given; and from him that hath not, the little that he hath shall be taken away.”
The rich have become richer, and the poor have become poorer; and the vessel of the State is driven between the Scylla and Charybdis of anarchy and despotism.
“To him that hath” etc. is a reference to Matthew 25:29 (the parable of the talents, see also Matthew effect). The aphorism is commonly evoked, with variations in wording, as a synopsis of the effect of free market capitalism producing inequality.
Ok. I guess there’s officially a Wikipedia page on everything in the known world these days. But I digress.
Generally I’ve heard the phrase used to express exasperation that (for whatever reason) the rich are getting even richer (and at a faster pace) than the rest of us.
I may have even used it myself in my earlier days, though I can’t remember it for certain one way or the other.
For most of my life I didn’t really think of the phrase much. I didn’t really associate it with me or my finances in any way.
But it’s been on my mind lately as I look back on my life and see it’s clear that the rich do get richer.
So I thought I’d cover the issue here, first by seeing what others say on the subject and then sharing my own thoughts and experiences on it.
Wealth Inequality
Let me say that before I get into the post that I realize I’m treading on thin ice.
Wealth inequality is a big and growing issue in American politics and economics.
I want to remind all readers that this site is not about politics or economics and I’m not discussing wealth inequality in this post. If you’d like to debate that issue, I’m sure there are plenty of blogs that discuss it.
I’m simply looking at a popular (or at least well-known) phrase that has to do with money and trying to explain why it’s valid.
I’ll leave the politics/economics of wealth concentration for others to cover.
Google and the Rich
I started my search for an answer at (where else?) Google and typed in “why do the rich get richer”. I’ll be highlighting some of the top search results to see what they say in response.
We’ll begin with a couple videos.
This one from Valuetainment lists 10 reasons why the rich keep getting richer:
That said, they did have some interesting stats on how wealth is distributed. The division of American land graphic was especially eye-opening.
Anyway, their list of ten includes the following:
- Exponential growth
- Positioning
- Long term thinking
- Regret minimization
- Specialized skill
- Networking
- Leverage
- Maximization of wealth
- Family wealth transfer
- Tax strategy
It’s hard to argue with any (or at least most) of these, but then again they seem a bit vague and hard to grab onto. Kinda touchy-feely. I prefer more concrete ideas and examples personally, so I kept looking.
Next is a video from Practical Wisdom:
The first part is what I had Googled and the last part sounded oddly familiar.
And it should sound familiar since the video is really a short summary of The Richest Man in Babylon
, one of the books on my top five list plus a book I’ve reviewed here on ESI Money.
The book has seven steps to becoming wealthy while the video lists five, but they are the same basic principles.
That said, this video (and the book) are less about “how the rich become richer” than they are about “how anyone can become wealthy.” They cover solid money principles that anyone can apply to improve their finances and are certainly not limited to (or even targeting) people who are already wealthy.
In other words, it doesn’t really answer the question either.
So I moved from videos to articles.
Unfortunately I didn’t have much luck here either. I only found one that got to the heart of my question.
This post from CNBC says it’s true that the rich get richer and details why as follows:
The wealthiest 1 percent put three-quarters of their savings into investment assets. By contrast, the middle class had 63 percent of their assets tied up in their homes, with home equity accounting for about a third since they have large mortgage debt.
Wolff found “striking differences in returns by wealth class.” The top 1 percent earned an average annual return of 5.91 percent between 2010 and 2013—far more than the 3.27 percent earned by the middle three quartiles. And that was due mainly to having more exposure to the stock market.
“The differences reflect the greater share of high-yield investment assets like stocks in the portfolios of the rich and the greater share of housing in the portfolio of the middle class,” Wolff said.
In other words, it boils down to the facts that:
- The wealthy have more assets (which is why they are deemed “wealthy” compared to others, by definition they have more)
- As a result, they have surpluses to invest in higher performing assets (like stocks versus housing)
- By investing in these assets, the rich become richer
The rest of the top articles were more like the second video highlighted above: they listed steps people could take to become wealthy in the first place (things like earning a good income, controlling their spending, staying away from excessive debt, investing for the future, etc.) Those are all well and good, but they don’t really address why people who are already wealthy become even wealthier at a faster rate.
But I think I have some ideas about why this happens…
Five Ways the Rich Become Richer
Based on both my life and observations, I think there are five key ways that the rich become richer.
All of them are a function of the following:
Most wealthy people have applied solid financial principles over time, accumulated wealth above the norm, and have placed themselves in a position to take advantage of their wealth to make it worth even more.
That said, here are the five ways the wealthy use their assets to become even richer:
1. They take advantage of compounding.
Here’s an easy math question:
Which will earn more at a 10% return rate — $5,000 or $50,000?
BTW, I’m using 10% to make the math really easy, so don’t get your shorts in a wad wondering (or asking) where someone can earn 10% guaranteed these days. I use 8% in my personal estimations, but I figured 10% made the calculations super simple for all. The principles are the same no matter what return rate you use.
I think we all know the answer but in case there’s someone who thinks this is a trick question, let’s spell it out:
- 10% return on $5,000 is $500.
- 10% return on $50,000 is $5,000.
- $5,000 is more than $500.
- Hence you earn more with $50,000.
Basically, the wealthy have a larger levels of assets which then earn larger amounts each year.
Then these increasingly larger amounts earn increasingly even larger amounts year after year after year, compounding until the difference is massive.
Let’s look at the examples above over time. Here’s what each of them is worth at 10% return:
- After 10 years, $5k is worth $11.8k while $50k is worth $118k
- After 20 years, $5k is worth $30.6k while $50k is worth $306k
- After 30 years, $5k is worth $79.3k while $50k is worth $793k
- After 40 years, $5k is worth $206k while $50k is worth $2.1 million
It’s easy to see how the compounding of large assets makes the rich even richer. In this example, they become $2.1 million richer than they were 40 years earlier and $1.9 million richer than the poorer people who started with only $5k.
2. They have surplus funds to invest.
The above example is only based on an initial investment sitting and compounding for 40 years.
But it’s also likely that the wealthy would have more excess funds each year to add to their investments. They are, after all, wealthier, so it’s easy to assume they have more to invest each year.
Let’s take the numbers above and add to them as follows:
- One person starts with $5k invested and adds an extra $500 to it each year.
- The other person starts with $50k invested and adds an extra $5,000 to it each year.
They both add 10% of their initial investment each year, so the savings are proportional. Yes, you could make a case that the wealthier person would have a disproportionately higher level of savings, but let’s ignore that for now — these numbers alone will make the point. Just know the difference could be even more.
If they both earn 10% on their money annually, here’s where they end up over time:
- After 10 years, the $5k start/$500 per year is worth $19.8k while the $50k start/$5,000 per year is worth $198k
- After 20 years, the $5k start/$500 per year is worth $59.2k while the $50k start/$5,000 per year is worth $592k
- After 30 years, the $5k start/$500 per year is worth $162k while the $50k start/$5,000 per year is worth $1.6 million
- After 40 years, the $5k start/$500 per year is worth $427k while the $50k start/$5,000 per year is worth $4.3 million
See how much the difference is now? The rich are even richer! And as I said earlier, that $5k per year they saved could easily be $10k or more, making the difference even greater!
3. They earn higher rates of return.
This is covered in the CNBC piece above, but I wanted to expand on their thoughts.
I know that when I had little to invest, I guarded it closely. It wasn’t much to wealthier people, but it was a lot to me and important to our finances, so I wanted to protect it. As such, I was cautious in my investments. I was limited in them as well by both the amount I had to invest and my own willingness to take risks.
As my assets grew, I loosened up. I was willing to take more risks with my money because I had more and any given amount wasn’t as important to me as it once was. If I lost it, it wouldn’t kill me. Hence I risked more and was rewarded with higher return rates.
I still wasn’t reckless in my investments but just willing to dial it up a few notches.
Think of it this way:
- Most people start with their homes as their primary asset (as CNBC notes). This might earn them 3% gains over the years.
- As they accumulate more, they invest in a combination of stocks and bonds and earn closer to 5%.
- As this grows they are comfortable with risking more in stocks where they might earn 8% a year.
- This grows into even more and they might branch off into real estate (like I did) and earn 10% in income plus strong appreciation.
- Then they might buy a business (also as I did) and earn 200% on their money in a short period of time.
In each stage, the rich got richer. As they did, they invested at higher rates of return, which then helped them become even richer.
Just to humor myself, I ran the numbers to show what a difference return rates can have over time.
Let’s just do a simple calculation of someone starting with $50k and no additional annual investment.
Here’s how much they would have at various return rates after 40 years:
- A 3% return rate would give them $118k
- A 5% return rate would give them $335k
- A 7.5% return rate would give them $902k
- A 10% return rate would give them $2.1 million
Big difference, right?
In addition to simply changing what they invest in, the rich can also increase their return rates by getting better deals on their investments.
For example, because I had cash in 2013, I was able to buy properties at lower prices than those who had to finance, effectively giving me a better rate of return.
Let’s say Jim was bidding against me and he offered $200k but the seller wasn’t sure Jim would be able to qualify for a loan. Or perhaps the seller didn’t want to wait in a skittish market.
But I had $185k in cash and could close, guaranteed, very quickly. The owner could easily prefer my offer (and did) because he knew I had the money and had it now.
My return was effectively $15k better than what Jim’s would have been. This in effect raised my rate of return. Because I was already wealthy I was able to invest to become wealthier.
4. They have opportunities that aren’t available to others.
Sometimes the wealthy have access to opportunities that aren’t even available to (or known by) those who aren’t wealthy.
Here are a few times this has happened to me:
- In real estate, I got deals (never mind they were at better prices) that others couldn’t have gotten simply because I had cash and they didn’t. So I was able to seize the opportunity and earn a good return when others weren’t.
- I was given the chance to bid on a business because I had cash available (most others didn’t get the chance because they didn’t have the funds). In addition, I was able to outbid some other worthy competitors because I had a substantial amount of cash and was willing to risk it. So I purchased Rockstar Finance for way more than what it was worth using any reasonable set of metrics — but still a lot less than what I thought I could make from it. I won the bidding, grew the business, and sold at a handsome profit.
- A friend of mine approached me to invest in his rental properties because he knew I was wealthy. To date I’ve been able to move $125k from earning 2% in a savings account to 10% with him. Sure, there’s more risk (which is why he pays more) but again it won’t kill me if I lose $125k, so I can afford to be riskier.
In addition to these I could list many examples of opportunities that I or others have had by networking. This is because wealthy people tend to talk about money, wealth, investments, and opportunities when they get together. This presents the wealthy with opportunities that others simply don’t get — and those opportunities are often quite lucrative.
5. They can strike when the iron is hot.
Warren Buffett famously said to “be fearful when others are greedy and greedy when others are fearful.”
A great example of this was the 2007-2008 crash that killed the stock market and most real estate.
But because the wealthy had excess reserves, they were able to be greedy when others were fearful.
This is when many poured millions into the stock market and bought real estate at bargain prices. Even though times were bad, they had assets to make these moves and could afford to risk them. Those with less assets tended to circle the wagons and pull everything out of the market and housing.
Now look at what has happened in the past decade. Because the wealthy were able to strike when the opportunity presented itself, they became even wealthier.
Here’s a video that highlights the five ways the rich get richer:
Rich Dad Poor Dad and Old Money
As I was winding up this post, I had just started re-reading Rich Dad Poor Dad
for an upcoming review. In the introduction he makes the following statement:
One of the reasons the rich get richer, the poor get poorer, and the middle class struggles in debt is that the subject of money is taught at home, not school. Most of us learn about money from our parents. So what can poor parents tell their child about money? They simply say, “Stay in school and study hard.” The child may graduate with excellent grades, but with a poor person’s financial programming and mindset.
This makes a lot of sense to me. I bet many of you can relate as well — having parents who knew little about money management themselves.
That’s why I consider Dr. Thomas Stanley to be my “Rich Dad.” He wrote The Millionaire Next Door
. I read it, I applied what he said, and I became wealthy.
Interestingly enough, Robert Kiyosaki, the author of Rich Dad Poor Dad has written a book titled Why the Rich Are Getting Richer
which he calls “graduate school for Rich Dad students”. I’ll be checking the book out.
I’m also reading The Old Money Book
and the sentiments in it are the same as in Rich Dad Poor Dad. In this case, Old Money parents do teach their kids about money — and since they know what they are talking about, the home education is quite successful at maintaining generational wealth.
Not Limited to One Method
A big reason the rich become richer is that they can use several (or even all) of the five points above to their advantage.
We’ve seen numerically that any one of the methods can help tremendously. How much more of an impact is there if they work together?
I know I have used all of the points above throughout my life, sometimes individually and sometimes a few combined for an even greater impact.
And if it’s clear that any one of these could make the rich richer, it’s even more obvious that used together they can grow wealth exponentially.
To wrap up, those are my thoughts on how the rich become richer.
Do you have anything to add? Did I miss anything?
If so, leave your ideas in the comments below.
In the past I have written that it is better to be on the lender side of the financial equation rather than the borrower side. If you are the one collecting interest you are winning the game and this is the side the wealthy typically is on.
Another point to make is that the wealthy get richer because they are not living on the edge financially and if a downturn comes they are less likely to sell depressed assets and lock in the losses compared to someone who is poor, may have lost a job in a recession, and cannot withstand the loss of income/value in their invested assets and must sell.
The wealthy may use interest to maintain wealth but not to generate it. This was true in the past and much more so in the last decade. Interest is simply treading water (CD’s and bonds) as the rate is so low it barely keeps up with inflation.
Many rich actually get rich by using leverage to vastly amplify the power of their smaller capital base to make it grow much faster. No doubt there is increased risk with this, but the formula is debt as leverage to increase business returns.
The other kind of debt is used to supplement consumption and that is a fast track to the poor house.
All good points. I’d also add that the US has a strong pay-to-play aspect to its economic system, where there is a threshold amount of service costs in order to access those things which provide a high return toward health creation:
Education, health care, tax accountants, tax lawyers, other financial service providers, better/safer neighborhoods, the ability to invest in IRAs and 401ks, and investments themselves.
So, I’d argue that those who are wealthier can access these services and compound their wealth geometrically. Others, not so much.
Thoughtful article. I enjoyed reading it without all the polemics you would normally see on this subject. Thank you!
Just to emphasize the Buffett part of the conversation. If you have a chance to watch the movie “Too Big to Fail”, there is a great scene (even if the language is a bit rough). The head of Goldman Sachs (Lloyd Blankfein) was walking down the street in a semi-panic because he is trying to save Goldman. He’s been in meetings with the other banks and, collectively, they’re trying to save the financial markets.
Blankfein was hoping to get a deal with Buffett – he had the cash that could save Goldman from public distress, but Buffett isn’t taking his calls. He says, “I’m calling Buffett again” and the camera switches to Warren Buffett.
Warren is in a Dairy Queen in Omaha with his granddaughter eating ice cream. He opens his phone, sees who it is, and just ignores the call.
“Grandpa, they keep calling. What if it’s important?
“They always think it’s important.”
(his granddaughter gives him a look)
“…Fine…I’ll make it quick…”
And Warren raked them across the coals.
As you described in some of your personal deals, you had money, and they needed money. Warren had money, Goldman needed money. This is why the rich get richer. When they need money, they don’t have to sell assets at rock bottom prices. They have the cash to bridge themselves across the bad times. Without being too dramatic, sometimes I believe it’s the emergency fund that makes people wealthy.
Your take on the emergency fund and having the cash to bridge in tough times is one well worth pondering.
I love this topic. I strongly believe that money attracts more money. Whether its from compound interest, or the ability to negotiate from a position of strength, the more money you have, the easier it becomes to make more.
The good news is, if you are in your early years of building wealth, its only going to get easier as you pay down debt, and invest.
The bad news is, if you are in a terrible financial situation, it is extremely difficult to get out. You don’t see wealthy people walk into pay day loan business. Just like money attracts more money, debt attracts more debt.
I know you don’t want to get into the economics (although one might argue that explaining the 5-7 ways is explaining the economics) but what about a bit more on why the poor get poorer? Theoretically, the poor could stay at the same level of poor, but why do the tend to get poorer?
Just a reminder that even if wealth isn’t a zero sum game, the is no possible way that everyone can be wealthy, even if everyone could apply all your strategies.
My grandfather used to say “you have to have money to make money”. That seems to be a common theme in the above articles.
I don’t buy into the idea that the “rich getting richer” is the reason that there is a wealth gap.
Nobody is poorer because I made money on investments or other good decisions. The poor may not have had the same opportunity but it was not like some rich person took their money.
Most people’s current situation is the end result of decisions they made over time.
A friend and I debated this a few years ago over drinks. He’s a “poor” single man that does home contracting and barely gets by. I’m doing a bit better financially. We focused on spending.
I have advantages that he does not have – which leads to people like him spending more:
1) Better access to low interest loans. I’m debt free now, but wasn’t always. However, his debt is all on credit cards at over 21%
2) I can buy things in bulk because I can afford more – he buys as he needs at higher prices
3) I work for a corporation that provides me insurance – he pays out of pocket and, in general, that’s more costly for him.
4) He can’t afford much of anything new – so it’s all used. Used stuff often needs repairs – most he does himself – but even then he is buying parts or missing out on doing revenue-generating jobs.
Interesting topic, many possible tangents. To your question, did you miss anything, Derek touched on it and I’d amplify it:
Access to Capital
By way of example, my experience with self-made ultra high net worth individuals is that they don’t keep much cash laying around. They like to be fully invested, often in only one or two asset classes or sectors. They tend to double down on what they know well, which leaves them exposed to a fair amount of volatility and illiquidity risk. Which is where access to capital comes in. They can “afford” to focus on higher return, higher risk investments because they have enough valuable assets to potentially borrow against if needed. They also use debt leverage to juice higher returns. When they are showing up with cash to put to work, it may well be borrowed cash, just against some other unseen asset.
And if they get wiped out on a big investment, they still have enough wealth, connections, and ACCESS TO CAPITAL to start over again.
On another tangent, though I believe Kiyosaki to be pretty ignorant of all matters financial (from reading his ill-fated series of Yahoo articles), he does manage to say some really good things in that first book of his.That child graduating with excellent grades, but a poor person’s financial programming was me. Fortunately, I met my wife (excellent grades and wealth programming).
Great insight here with respect to liquidity, access to capital or credit, and using leverage to juice returns. All spot on as to how the wealthy grow their net worth.
Also agree about Kiyosaki. He gives some generally good advice but he is not my cup of tea. He seems to me to be mostly a motivational speaker/author such as Tony Robbins with respect to money, but he is low on actionable advice and his own financial acumen does not appear to be very deep. I can’t confirm but there are many who claim his rich dad poor dad story is entirely fabricated and his own wealth is only from selling his product not from actually investing.
When people mention him its kind of a red flag for me on par with people who want to push gold as an investment. I have not found those who are enamored with him to be very successful financially. In my experience most are still in the motivation phase, not the action phase. Most of them that I know never seem to get past the motivation phase. When I have met people with strong financial success, they don’t point to Kiyosaki or if they do it is only as someone who made them think, but they didn’t get their success formula from him.
Apex, come to think of it, I have never met a financially successful person who cited Kiyosaki as their blueprint. And I have met a very many extraordinarily successful people in my life and career. Usually, as you noted, its either young people just getting started or mid-life folks still trying to figure out which end is up.
I do think the first Rich Dad Poor Dad book had some good useful nuggets – almost any personal finance book is bound to repeat some of the usual age-old wisdom. The danger is if anyone should take his writings as a blueprint for success… that would not likely end very well unless sheer luck intervened. And his articles on Yahoo, that was some of the most bizarre and disturbing stuff I’ve ever seen published in the FI space. Seriously.
My very first personal finance readings were from Suze Orman, the much hated queen of TV personal finance. Courage to be Rich was actually, really helpful to a novice like myself (back in the day). She is, of course, a bit much nowadays and all about selling, selling, selling.
Millionaire Next Door, while I question its survey validity, is one of the most clear-headed and motivating personal finance books I’ve ever read… they should just make it clear that they are really mostly talking about are “7-digit middle class” millionaires. I know and live around many millionaires who do not exactly fit their mould of frugality. The book seems misleading that way, nonetheless extremely useful for the average person looking to become FI or FIRE.
A couple things…
1. Rich Dad Poor Dad was the #3 book cited by millionaires as one that influenced them financially:
https://esimoney.com/top-money-books-millionaires-read/
2. Because of this, I have recently gone back and read three Kiyosaki books to see what they were about. I always thought of him as a financial wacko, but as I have read the books they actually are full of pretty good advice.
Yes, there are some “Huh?” sections, but in context at least they seem less strange than if there were random quotes pulled out of the book and used elsewhere.
I think an actual problem he has is that he’s not a great writer. In fact, he says himself that he’s a best SELLING author, not a best WRITING author.
Anyway, I have several posts coming up about his books and you’ll probably be interested to read them (though you may not agree, I find his stuff mostly useful).
Thanks for the explanation, as I had been wondering why a credible source of FIRE guidance such as yourself would occasionally reference a somewhat discredited source such as Kiyosaki.
I will admit that when I read the book, a very long time ago, and well before I became a millionaire, that there was a positive motivational component to it, especially its emphasis on building income-producing assets, though I recall disagreeing with some of his recommended methods. Would be interesting to go back and reread as you have (will have to borrow from library as I refuse to provide him with any further royalties). Probably instead, I’ll just eagerly await your review (leisure time being quite precious these days).
“you have to have money to make money” is simply not true.
To wit, something like 90% of all millionaires are self made first generation millionaires.
It is entirely about your behaviors, at least in this country
The better cliche is “the first million is the hardest.” You have to exchange labor for money to get the first million (or 1/2 million or 100K or whatever number you want to use as a capital base). Then you can use capital investment and leverage to let the first million generate more millions. You can’t get rich just by exchanging labor for capital. Labor gets you the initial capital but compounding capital is how you get rich.
Something I always think about when I see this topic, especially when people speak about inequality and taxing the rich, is that the point of view comes from assumption that the amount of money available is set. So if 1% controls 40% of the wealth or whatever the right figure is, then they are holding that money away from others, and thus the 99% cannot progress.
As far as I know, this is not true. Just today there was an article in the news where they mentioned that the richest person in 1982 would not make the top list of Billionaires in 2019. Did someone took this person’s money away? No. The economy grew and others took opportunity to make money. Just a few years ago, Amazon, Facebook, Google and others did not exist. They created markets, added value and the shareholders made money. but that money did not necessarily come at the expense of others.
Nor does it prevent anyone from coming up with a good business idea, implement it and make money. In most cases, anyone, with any salary can make decisions to get ahead and become a millionaire or billionaire. we should be happy that we live in a country where this can happen and celebrate success, and emulate the success.
I am a strong capitalist. I want to pay the minimum in taxes.
The one counter argument is that even though the economy grows, relative wealth still matters for items that have limited supply. We can see this from economics and the supply demand curves. As long as supply outstrips demand, price will remain affordable even for those who have a greater gap with the wealthy. For items for which demand outstrips supply the increased wealth gap makes those things even more out of reach for many than before.
This is not a commentary on what should be, simply on what is. The key to wealth inequality not causing issues is for there to be ample supply of the things that matter most and that are most desirable. When supply is constrained only those with relatively more wealth remain unaffected.
For most things supply is still in check. One counter example currently seems to be housing. Housing supply has been constrained in the last decade. Building is still vastly below historical norms. This is one example of where relative wealth matters and it is why so many entry level buyers are currently having trouble even with historically low mortgage rates.
As long as our society has the ability to avoid scarcity relative wealth may not be that important. For any product that is in scarce supply the ONLY thing that matters is relative wealth. Econ 101 shows the price will increase until demand is reduced to meet supply. That is done by pricing out the demand of those with relatively less wealth.
Good point. However the ability to not buy a house does not necessarily impact the ability for a person to get up in the morning and hustle. On the contrary it should be a motivator. I am looking at this from a microeconomics view. Few people seem to have the willingness to work towards financial independence. Those that do can be very successful and relative wealth of others should not be an impediment.
Fair enough. From the micro view that argument can be said to apply to “anyone.” However it cannot apply to “everyone.” If everyone hustles, then no one gets ahead. If everyone goes above and beyond for the boss only 1 can get the promotion. The micro motivation only solves the problem for the few.
One could argue that is not my problem. Be one of the few or be left behind. The problem with that argument is when the many have too little, they rise up and that is never good for the few. Our economy needs to be able to support the many at a sustainable level or the stability that the few of us depend on can be torn down, brick by brick.
Just wanted to plug Patrick and Valuetainment. You mentioned his video was a bit hype-y. I misjudged him a bit when I first ran across him on YouTube. He’s actually a stand-up guy. He’s an *American* Army veteran, serving in the 101st Airborne. And he’s an entrepreneur who started an insurance agency aimed towards minorities. He’s been VERY successful with it. I’ve become a big fan of the interviews he does — they are very good.
I’m new to your site and so far I am enjoying it. Thank you for all the work that you are doing. As far as your post goes, I think you are spot on. You touched upon education, which I think is really important. Think about it, how did rich people get rich in the first place? They not only learned how to earn money, but also how to save it. After that, becoming richer is a matter of keeping your spending in check and compound returns as you pointed out. The power of compounding is awesome! Not only in growing money, but also in growing knowledge. Standing on the shoulder of giants as the saying goes. Thank you again for putting out such great material.
The rich pay less taxes. I could never afford to contribute to my RRSP (Canadian tax advantaged retirement account) until I suddenly had a $35,000 windfall. I put it into my RRSP and got a $7,000 tax refund. It took me years of scraping to get my first $10,000 in my TFSA (Canadian tax advantaged savings account) and here was $7,000 just handed to me because I had money to invest.
The rich never pay less taxes. That is simply not true.
In fact, everyone pays the exact same tax if their circumstances are exactly the same (and they file/pay correctly).
It wasn’t handed to you because you had money to invest. You were able to take advantage of lowering your income and paying less taxes than you would normally as a consequence. You could just as easily have taken that $35k and not put it into your RRSP and it would have been taxed as income. You made a good decision.
To make the generalized statement that the rich pay less taxes as a result of a good choice on your part is logically flawed.