By: Roshawn Watson
Just yesterday, I heard a prosperous (understatement) businessman say that he didn’t believe that the rich got richer and the poor got poorer because everyone has the same opportunities to move between classes, so the poor can become rich and the rich can become poor. In his opinion, money is quite dynamic. While I acknowledge there is some truth in his statement about opportunities, for the most part I disagree and believe that the rich do get richer. There are patterns of behavior that set one’s trajectory for poverty or great wealth. Generational poverty and wealth (despite the death estate taxes) exists, but how does one get on the right side of the wealth equation? Here are some thoughts.
Your Environment Matters
It was the late billionaire J. Paul Getty who said that if he were down to his last five dollars, you would not find him in some cheap restaurant trying to eat all he could. He would rather be in a nice hotel lobby drinking coffee with visionaries and leaders. His rationale was that the people he wanted to be a part of his future were at the hotel not the restaurant. See his wisdom. This is a profound statement (and not because you can no longer get a full meal for 5 dollars in most cases). He’s suggesting that:
WHERE you are matters MORE than WHAT you are!
Your environment is just as important to your success as what you know. Our environments can encourage us to strive for excellence or comfort us in our mediocrity. It’s tormenting to think how many dreams have been destroyed by toxic environments. Think about the movie Precious. What could Precious have done had she been in the right environment all along? Clearly, she was a survivor and a capable young woman, but suppose the only thing she had to survive was high school instead of financial, emotional, physical, and sexual abuse. Once she left that mess, she began to reclaim her life.
Wealthy Habits
Oh… THIS IS A BIG ONE! Habits mean that the thing you do twice becomes easier. Don’t be mistaken, habits are not the same as discipline. Discipline is the conscious effort to birth a habit. Discipline is unnatural whereas habits are instinctive. Remember, we are creatures of habit not discipline. I’m convinced that when you have wealthy habits for a long enough period of time, you build wealth. This also works if you have a substantial income or sudden windfall.
In some respects, you don’t really decide your future. You decide your habits, and they decide your future.
Habitual Frugality – Frugality can mean different things to different people. What’s frugal for Oprah is remarkably different from what’s frugal for us mere mortals 🙂 (seriously that was not a dig at Oprah… just an exaggerated example). My point is not to promote coupon clipping
per se. If that is not your thing, please don’t feel condemned. Frugality is about maximizing output for your input. If Thomas Stanley work has taught us anything, it is that most millionaires are indeed frugal but they are not necessarily first-cost sensitive. How good is your deal if it ends up being crap or you have to waste a ton of time to obtain it? Moreover, even many of those millionaires who don’t
appear particularly frugal are tremendously more productive with their incomes than most people. For more on this subject, read
Toyota Millionaires vs. Mercedes Millionaires
Habitual Investment – Do you habitually pay yourself first? How so? Are you using savings accounts and c.d.s? How effectively do you leverage your income? Portfolio assets are nice, as are investment properties or privately held businesses, but is anything really infallible? Of course not! My point is I think we should all endeavor to become professional investors and educate ourselves accordingly. Regardless of which asset classes we decide to focus on, remember the wealthy often earn a great deal money through their assets. Not only does this make wealthy individuals financially free (independent), but this has important tax implications as well (at least for now). For example, consider the tax consequence having $4 million in unrealized capital gains in 2011.
The Laws Affect Your Wealth But Who Sets The Laws
Have you every heard of the golden rule? He who has the gold makes the rules. The fact that many of us live in democracies doesn’t negate the impact money has on our respective legal systems. Let’s look at Congressional wealth for a moment:
- nearly half of Congressional members – 261 – are millionaires
- 55 have an average calculated wealth in 2009 of $10 million or more, with eight in the $100 million-plus range.
- Members of Congress saw wealth jump by 16% between 2008 and 2009
- In 2009, the median wealth of a U.S. House member stood at $765,010, up from $645,503 in 2008. The median wealth of a U.S. senator was nearly $2.38 million, up from $2.27 million in 2008.
My point is just because someone is “for the people” doesn’t mean that they are “of the people.” Many argue that several of the tax laws were made in favor of business owners, investors, and landlords. The truth is there are so many loopholes. Just last month,
Kris brought everyone’s attention to how Google legally uses
offshore tax havens to shelter billions in revenue thereby minimizing their effective tax rate to a mere 2.4%. They are not alone.
I say this not to incite populist anger. After all, one would have a reasonable argument against double taxation in the first place.
Business owners not only provide jobs but also take the risks to build the companies, so this isn’t as much as a criticism as it is an acknowledgment that the tax code can work in favor of business owners and those who generate income through more passive or portfolio means.Given that taxes are most of our single largest lifetime expense (we’re taxed when we earn, when we spend, when we save, and when we die), getting a handle on taxes is prudent, and according to Thomas Stanley, this is one of the most popular activities among the millionaires in his surveys. So ask yourself, what tax professionals are on your team?
High Income
If you have a high income, regardless of source, then you have the potential (in most cases) to bank more of your income than someone who makes the median income. Of course, this assumes that you have your expenses under control. After all,
regardless of whether you make $40,000 or $400,000 you can still be broke. In other words, that nice salary may not be enough to finance the life that you feel entitled to if that life style entails expensive private schools, exclusive neighborhoods, occasional shopping sprees, and extravagant vacations, etc.
For proof, please note that yet another Real Housewives castmate has filed for bankruptcy because she cannot meet her obligations on a mere $26,000 per month. Seriously, I personally feel for anyone going through financial hardships (regardless of fault). I bring this up not to deride her or pass judgment (I’ve made my mistakes too) as much as to show how $312,000 per year and some degree of celebrity cannot overcome jaw-dropping liabilities (debts equal to $19.8 million). Remember, it is infinitely more difficult to build sustainable wealth than it is to earn a high income. Still, it is easier to build wealth if your have a high income. The trick is making sure that you use at least a sizable portion of that high income to advance yourself and your family financially instead of just consuming it with lifestyle inflation.
Enjoy What You Do
It is so much easier to succeed financially if you actually enjoy what you do. Don’t sell your soul to a soulless institution for a paycheck. This isn’t to suggest being irresponsible by quitting your job and ignoring your financial obligations. I’m just saying don’t lose decades of your life doing something you hate or staying at a place that you hate out of fear or some misplaced sense of loyalty. The institution does not love you back. You and you alone are charged with finding meaningful work… work that is an authentic utilization of your passions, personality, and skill sets. If you enjoy it and are competent, you will excel. Good people love recognizing excellent work. Anyone who doesn’t is not worthy of your efforts anyway.
If you love what you do, you will never work another day in your life.
In aggregate, most millionaires are first-generation and did not get their money by accident. There are conditions, information, and laws that affect our financial positions, whether we acknowledge them or not. Don’t allow yourself to aimlessly follow the path set in front of you. Embrace the habits of the wealthy, and improve your balance sheets today!
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The toughest part mentioned in this post would be "enjoying what you do" simply because a lot of people don't know what they like or haven't discovered it yet, so it would be impossible to enjoy their jobs.
Habits like you said would be the key here. develop proper financial habits and chances are you will be able to reach financial independence!
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Luck entirely determines our starting circumstances. We don't get to choose our parents, our environments, or our genes. We don't have control whether our moms smoke & drink during pregnancy, causing problems, or an amazing mom that treats her body and the baby very well. We don't control whether we are born in a dirt-poor country undergoing internal strife, or a rich area.
Fortunately, we are not creatures of instinct (animals), but we have the capability to modify our environment and rise above our surroundings. There can be limits to this, and obviously starting last in the pack places a disadvantage that does nothing but harm, but at the same time this disadvantage can only spur us on harder. Many people have come through adversity and have been able to plow through the challenges and come out stronger for it.
IMO What really makes the rich richer and keeps the poor where they are is crony capitalism. The well-connected politicians are in a position to leverage millions of tax dollars and benefit from this power. Corporations with close ties to Washington can take advantage of this power to give themselves a leg up over their competition and punish smaller companies. The Fed, through expanding the money supply, transfers purchasing power from the many to the few by giving it in the hands of the banks and others that the government spends money on first, such as the military-industrial complex.
I don't know if we will ever see "fairness" in our lifetimes, but there are some trends moving in a good direction:
1) Increasing technology will allow us to correct genetic defects and diseases and eventually change attributes. Nobody will ever have to be born crippled or diseased ever again, and at some point, even simply being mediocre in terms of genetic endowments will be preventable. Sounds like eugenics, but so long as nobody is being harmed or killed, it should be much more ethically and morally tolerable.
2) Increasing world wealth helps stem the tide somewhat. Due to vastly increasing productivity over the last 50 years, much of the world has become wealthier, in spite of swimming against the current. This is the benefit of technological advancement and capital accumulation.
3) The natural pressure is moving toward decentralization. Any government must govern with the consent of its people, and people are growing more and more angry with the excessive power and manipulations of powerful central governments and central bankers everywhere over the world. Even all-powerful governments cannot resist the laws of economics, and the law of basic human action ensures that central planning will not be as economically efficient as the market system.
From 1900 to 2000 we saw many old empires break up and we saw a vast increase in the number of countries. At the same time, world wealth has exploded. I hope that going forward in the future we can reduce the barriers to movement between different countries (why is it that capital can move easily but labour cannot? That is discriminatory against labour…) and that we can further reduce excessive concentrations of power, whether military or financial. Excessive concentrations are not healthy to the natural growth and order of the world. I just hope that we can reach a better balance without a major war or WW3…
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Mich,
I think you hit the nail on the head. That's why job/career/vocation search begins internally. Then, you are "qualified" to go out their and find the right fit.
Habits are so important – I think that financial independence should flow naturally out of great habits!
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I couldn't agree more! A lower income doesn't preclude you from achieving financial independence. The right attitude (which can be fostered from being in the right environment performing the right vocation) is another big one as well!
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As always, very interesting opinion. I think crony capitalism does have a role here, but that is something that is external (we cannot control corruption all the time), but we can control our response to it. I find this liberating. Yes, there are some who start off with a disadvantage, regardless of whether corruption was a part of it, but with the right information and environment, we can rise about our circumstance and persevere like you mentioned!
I love what's happening with respect to world wealth increasing. I find it removes a lot of excuses to see kids launch multi-million dollar businesses, to see entrepreneurs launch social ventures, to see people have a chance at rising above poverty… increased world wealth is a good thing.
Let me give you my bias though, I am not about using government to reduce concentrations of wealth. That is akin to robbery. I am all about reducing "concentrations of wealth" by innovation and helping people rise above their circumstance so that they too can get into the "millionaire or billionaire flow." This is an unpopular belief, given the populist outrage about the rich getting richer, but it is mine nonetheless.
I'm about equal opportunity to wealth but not necessary about equal wealth (if it isn't earned).
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Consider your opinion and bias just a little bit less unpopular, as I agree with 100% of what you said. 🙂 IMO, the populist outrage is the viewpoint that is biased…
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Maybe I am too simplistic, but it seems the rich get richer because they knew how to get rich in the first place. After all, most millionaires ARE first generation. The key is to develop rich habits, hang out with people who know more than we do (great financial blogs help here) and learn the rich mindset. As we grow richer, we will continue to grow richer.
Thus: the rich grow richer. It is not a judgment, just an observation.
Thanks for the thought provoking post.
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Okay then, we're on the same page. I really don't understand all the passion involved with taking what someone has rightfully earned. In many cases, the person who "we" are trying to take from is just a prudent investor or a good business person. It's immoral to rob them of their success just because someone doesn't feel like he or she got certain chances.
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Doing what you love is definitely a journey. I want to make sure that people know to make it though. I just hate when I hear people settle out of fear or out of lack of money. I can understand temporarily if the amount of compensation is ridiculously high or your liabilities are very large, but what amount is worth "selling your soul." This isn't a judgment that anyone else gets to make but yourself. The interesting thing is that many people who are extraordinarily successful love what they do 🙂
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It's kind of like blogging. You have the power to make your blog a hit…… or not. But, if it's not… don't blame anybody else!
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In the end, that's what everyone should strive for IMHO: options. I don't care whether you want to be a nun, a teacher, a corporate executive, or a scientist personally. What I would hope is that you don't feel trapped. It takes some degree of planning though to make sure that XYZ decision is financially viable for your family. In many cases, you can make it work. However, doing so may necessitate lifestyle modifications. Thus, I agree with you. I understand your struggle, and that of your siblings, to strive for education. We're in a knowledge-based economy. Essentially, your insistence on education is a deliberate attempt to change your family tree and is laudable.
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Simple but very true. No excuses….no blaming…make it happen!!!!
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On the environment point I like the story of Warren Buffett watching the boat pullers in China at one of the gorges he was visiting with Bill Gates and just wondering how many Bill Gates there might be among them. It's mind boggling how much talent has been wasted because of wars, poor environments etc.
Also, the lightbulb effect has to take place. I did a book report in grade school on I believe it was Rockefeller and the book told a story of how he learned at a young age to get money to work for him. He delivered water to a construction site as a boy and used his profits to buy a wheelbarrrow and eventually hired other kids and bought more wheel barrows. This story struck a chord with me.
It took me a long time to come to the point of running my own business mainly because no one in my family was an entrepreneur. In fact, they worked for the government! It is really great seeing young people start blogs and make money from them etc.
Great post!
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The story about Bill Gates you tell in poignant and tragic. Unfortunately, it is also all too familiar. Sure, there are some people who are especially gifted. However, if they reside in the wrong environment, will there talents every truly emerge? This is why it is important to support programs that nurture young minds because we never know what we are missing. Some people could literally change the world if they got a fair chance.
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If only people did not just sit back and make excuses for themselves!! So many people love to blame because that way, failure is not their fault. It is the fault of the Republicans, the bankers, the rich, their parents, anybody but them essentially.
I sometimes wonder though, how much does raw intelligence matter in terms of success?
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Another great post!
I think the poor can become rich, but it's really hard for them to do so. Definitely the middle class can move up to become rich more easily than the poor (because of environment, examples of such successful jumps among family members and friends, and confidence).
I think you did a great job identifying the elements 🙂
Yes, people loving playing the victim card because it "renders" them powerless to have changed their situation. Sorting through such pathology is painful.
Raw intelligence is not a strong correlate to success. Numerous data supports this including Stanley's research and the book emotional intelligence. Intelligence doesn't hurt unless someone thinks that they are entitled to success because they are smart.
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Very interesting point. Clearly, one of the biggest drawbacks of being poor is being in a situation where one is surrounded by individuals who are poverty-minded. Thus, their crisis isn't as much a crisis of ability as it is knowledge capital, relational capital, financial capital etc. This makes it difficult, yet many do persevere. It seems that children of immigrants (i.e. first-generation Americans or those who were naturalized here at a young age) have a higher propensity to become millionaires than many other poor individuals.
As with the middle-class, I do think from a raw numbers standpoint, it is easier to become rich; however, the middle-class often suffer from "environmental deficits" too. Let's be clear, most people classify themselves as middle class, and the median amount of wealth in this country stinks royally. In both cases, the environment can suck and rob individuals of their prosperity.
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I am not sure how to say this without sounding wrong…
But my thought about intelligence is not so much about career success, but possibly to ability to get out from a bad environment in the first place. Perhaps the smarter kids are encouraged by more people to strive for bigger things. Maybe some kids are in such bad situations that the only people that believe in them are school teachers and such. I think everyone needs a mentor, and I do think the brighter kids get noticed more. In this case, I am talking more about 'starting out' than being successful in your career. For example, you might be the hardest working paperboy in the land. But if you don't know how to take the next step, you may be stuck delivering papers the rest of your life.
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Even look at Bill Gates himself. I think part of what made him successful is his parents recognized his intelligence and got him properly educated even during his K-12 years. Had he been born into the lower-middle class, would Microsoft exist? Who knows…
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Interesting thought: using one's intelligence as a means of transforming oneself from poor to something more. What you are suggesting seems reasonable. The mentorship, whether through the form of actually knowing someone or obtaining mentorship through books or even blogs and podcasts, is certainly key in my mind. There are a lot of smart kids who go unrecognized, and whatever goes unrecognized goes unrewarded. That said, I think the students who are most likely to be recognized are the very bright and the very bad.
I guess what you are saying is that there are some birds whose feathers are so bright, they were never meant to be caged.
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That's another great point. Despite Gates obvious talents and intelligence, other factors played into his success, such as environment and the resources to nurture him intellectually. These other things are contributory and cannot be disregarded as inconsequential.
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I subscribe to the believe that if you distributed the world's wealth equally to everyone that in 10 years we'd be right back where we started. Some people just know how to make money and accumulate assets, while others blow money like there's no tomorrow. Good money habits are rarely taught to kids by parents, schools or friends. That's why these finance blogs on the internet are so important for those looking to change their fate and fortune.
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This is so sad, but unfortunately there appears to be much truth in what you say. I agree blogs, podcasts, books, seminars… whatever medium someone chooses, he or she must take responsibility to learn about personal finance on his or her own in many cases. It's a reality, and sometimes people just don't realize it until they have wasted years or decades.
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Nice post Roshawn. Always interesting to look behind the spreadsheets to ponder the principles that make up the numbers.
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Thanks so much Carol. I love facts and stats myself and was very tempted to leave them in here, but in the end it just didn't work. I deleted every single one that was in the initial post. Instead, these are just some of the principles. I really appreciate your comment/feedback. It completely validates my initial impression about this post 🙂
Cheers
I'm a little behind in my commenting, but this is a great article. What you say about environment is so true. Connections are important, attitude is important, opportunity is important, and if you're not positioned for that, it can be a long climb up. But that's not to say it can't be done (or undone in the case of those who lose it all) by the right people.
Thanks so much. I'm behind on commenting too. I really appreciate your feedback though. I agree that so people persevere despite having the correct situation but it is certainly more difficult not just in the things that they have to do but also keeping up their spirits in the fact of adversity.
Being a millionaire is everybody’s desire. Being a millionaire isn’t only about luck, skills and intelligence. It is also about the attitude, the mindset. A person wanting to become a millionaire must really have that passion to be one. Goals must be set and the mind must be focused towards achieving the goal. Avoid any distractions and stayed focus. Our mindset is very important and our willingness to go an extra mile.
I agree the attitude and mindset are quintessential. People often dismiss this for the more "obvious",l but I would argue that the mindset if often more important than the skill set and intelligence.
Great observations!!!
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thanks for share such a nice money making tips and ideas keep sharing.
According to Blog, the views of writer are truthful because everyone has the same opportunities. The poor can become rich and the rich can become poor. Thanks!