In life there are winners and losers. The more you win or get ahead, the more you get richer. You may have a great business that brings in a lot of money. This book will help you get ahead and increase your wealth. Knowledge is power and this book gives the right knowledge to the right people. I have gained a lot from reading this book.
It shows you how to identify opportunities in different sectors for investment, build winning teams, how to invest wisely in companies without any knowledge about them, why it is better to buy into businesses that already sell when compared to build one yourself (unless you are an expert at that field), when to sell off investments, how to make money even in bad years, necessary mindset changes, and much
The Rich Have Assets and Can Put The Assets To Work
In this world, labor isn’t the only exchange for money. People also will pay to use certain assets. Those are called income producing assets and rich people have a lot of those.
Real estate is an example of an income producing asset. In fact, I am a big fan of real estate and believe it should be a cornerstone of your investments. People will pay you to live or work in your real estate property.
Cash is another example of an income producing asset. Banks will borrow your cash and pay you an interest rate.
The rich have more income producing assets that will help generate cash flow and continue to add to their own net worth.
The Rich Have Money and Can Buy Unique or Rare Items Which Can Appreciate Faster
I remember reading that Kevin O’Leary of Shark Tank fame recently purchased a Patek Phillipe 5711 watch. It is the steel Nautilus with a blue dial.
The watch retails for around $30,000 in the US. The watch is in such high demand that there is a multi-year waitlist for it. Kevin O’Leary said he waited 8 years himself to get his hands on that watch.
Because of this high demand, the price of the watch in the secondary market ballooned to around $60,000. People who do not want to wait years to buy that watch from an authorized dealer have driven up the price of that watch in the secondary market. Upon buying the watch at $30,000, Kevin was able to make a quick 100% return on his purchase.
The rich have money to buy rare, unique and expensive items. Those items are coveted by other rich people. With heavy demand and short supply, the prices will surely go up. If you have money, you can also buy such items.
That is another reason why the rich get richer. They can afford to buy expensive items wanted by other rich people and those items can appreciate quickly given the amount of money the people who want the items can afford.
They Place A Higher Value On Their Time
If you go to work, you expect to get paid for your time and effort. I hope that seems reasonable to all of us, except for a few politicians out there who believe you should be tax heavily on your effort and collect very little for your labor.
If the economy is good, I assume you will take a job only if it pays you at least what you think is a good price on your time. If the job doesn’t pay you what you believe you should make, you will probably decide to walk away and look for a new job.
The rich feel the same way except they might place more value on their time. We all work for money accordingly to what we believe is a fair exchange for our time. The rich end up getting more money for hours worked because they believe a higher pay amount is necessary for their time
This makes sense given the rich already have a sizable asset pool. They tend to compare compensation to their asset pool. $100,000 a year might sound good to someone with $25,000 in assets. But if you have $10 million in assets, $100,000 a year in compensation for working a job doesn’t sound as great.
Therefore, the rich will elect to work on something that can produce a higher compensation. Hopefully, this seems logical to you and is one of the reasons why the rich continue to get richer. They place more value on their time.
If You Are Rich, You Have Better Financing Options
The rich have easier access to capital. That shouldn’t be a surprise. They have two things working in their favor over the average person: (i) assets and (ii) strong income. Lenders are in the business of providing money to people. In return, the lenders need to recover their principal back and charge interest.
One way for the lenders to mitigate the risk of not recovering their money back is by asking for collateral on the loan. Why can banks lend at a better rate on a mortgage than on a personal loan? The reason why is because your house serves as collateral on a mortgage.
The rich have assets, especially income producing assets. Those assets can serve as collateral on a loan. There are more financing options available to the rich because of this.
Additionally, a lender wants to see strong income in order to cover the interest payments. The rich have higher cash flow than the average person. That makes the lenders feel more at ease.
Banks might also provide better financing options if you have more assets with them. Some banks offer a quarter point or more in interest rate discount on mortgages if you hit certain asset levels with them. This also allows the rich to borrow at a lower rate.
They Have Greater Influence
Some of the rich have gotten to their position because they lead companies or have a strong following. Their influence is great on either employees or customers. This kind of influence is also very valuable and can produce great wealth.
Take Kylie Jenner for example. She is part of the Kardashian/Jenner family. According to Forbes magazine, Kylie’s net worth hit $1 billion and that made her the world’s youngest self-made billionaire. She launched her own successful cosmetic line which generated the bulk of her billion dollar net worth.
Kylie used her immense number of Twitter followers to help promote her cosmetic line. Last check, her Twitter followers totaled 27 million. With that many followers, she should be able to sell a lot of whatever product she wants to push to her followers. Her level of influence on her followers allows her the ability to generate great wealth.
Better Investment Opportunities
The rich have better investment opportunities. There is nothing corrupt or illegal about this. In fact, there are government regulations out there which only make certain investments available to the rich.
Take a private equity fund (PE Fund) investment for example. PE Funds by law are only offered to accredited investors.
To be an accredited investor, a person must have either (1) an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectations of earning the same or higher income in the current year or (2) a net worth exceeding $1 million.
The law is put in place to protect the average person from getting exposure to what the government perceives as hard to understand and riskier products. This means in order to take advantage of a PE Fund investment, you need to be rich.
They Have Better Connection
This could be one that is a self-created circle. People in general think the rich have better connections. Better connections can lead to greater opportunities. People like greater opportunities and, hence, they want to connect with someone rich. Now this results in the rich having more connections.
Rising start-ups with tremendous potential in Silicon Valley can easily attract capital. But at times, those start-ups don’t just want capital; they want guidance and also relationships that a new equity partner can bring. If you can only offer capital to the start-up, you will lose out to another prospective investor who can bring both capital and relationships to the table.
The rich have better connections and those connections offer better investment opportunities for them to keep getting richer.
They Take calculated risks.
The rich don’t gamble on big financial decisions; they do what they can to mitigate risk. They do their research and analysis, and determine which options best suit their financial needs and business desires. They weigh the pros and cons, and then take calculated risks.
They make financial decisions by asking themselves, “Will this bring me closer to my goal?” They avoid frivolous risks that aren’t really going to benefit them, and never take a cavalier attitude when it comes to money.
They Leverage People To Produce More Output
The rich have the money to hire more people to help provide leverage on time. The average person performs chores around the house in order to keep the home in order. Raking the leaves, cleaning the house, doing the laundry, cooking, and running errands are some of the chores performed.
Those chores are necessary in order to maintain an organized life. However, they don’t directly produce income. The rich can hire people to perform such chores. The rich can instead use the time that would have gone into performing the chores to work on projects or perform tasks which can produce money or income.
The rich can also hire many people to help with income producing businesses or projects. Instead of exchanging only one person’s time for money, the rich can exchange many employees’ time for money. Think about the owner of a law firm, a dental practice or an accounting firm to see leveraging other people’s time in action.
They Have More Information
The rich have more information or access to information than the average person. Information can produce greater wealth and income.
There are reasons why the rich have more information. It can be that the rich have more time to do research. They might have gotten rich because they excel in a particular field. The rich might also have better connections and relationships which can result in better education and information from other experts in a particular field.
The information that the rich have can be more valuable and can result in greater wealth building opportunities.
Conclusion
The rich get richer and the poor get poorer is one of those political phrases that gets thrown around, like “class warfare” or “don’t tread on me.” These are typically used by someone who wants to avoid talking about an important topic (or wants to criticize someone else). However, what this phrase fails to address is an entire school of economic thought dealing with income inequality. And since this topic has recently become a hot-button issue for candidates everywhere, I decided to tackle it today.