Why the Rich REALLY Get Richer

What did the rich get to be so rich? How do they keep getting richer? And for those that made it themselves, that weren't born into it, what can we learn from that? That will benefit us. Welcome to riches revealed, revealing how to improve your finances and lead a richer life. Coming to you from the scruffy little city of Knoxville, Tennessee is certified financial planner, Jack Martin.

welcome to episode one of riches revealed. So when you think about why the rich get richer. You probably think about favorable tax policy and hidden Wu Paul's and insider deals, knowing the right people and being able to afford the right lawyers, all the things that you hear about in the media and you'd be right, but that doesn't help you today.

What can help you as knowing the behavior of successful people and being able to emulate that within your financial situation. So let's take a look at what they do

in my line of work. One of the first things that I tend to see, one of the basics I see of people who have money is that they're able to. Before to be able to put their money into investments, such as real estate and stocks and bonds and collectibles, and businesses, and partnerships,

the poor have to put a disproportionate amount of their money and to the basics for, the necessities.

Additional money goes to things like cars and electronics, all of which are depreciating assets. And oftentimes they are required to finance those things in order to be able to obtain them. And so for the privilege of being able to get a depreciating asset, they're having to pay extra money just to be able to.

The wealthier, also able to use the power of their money in order to be able to obtain things in quantity, just general daily goods. For instance, they can buy those in quantity in there for produce their per unit cost.

They're able to buy higher quality items. Those items may be a better value long term because they may actually hold up longer. And therefore the total cost of ownership may have, should be lower for those types of units.

The expression is I think by once by right. And that sounds good. But it's difficult to do when you're able to barely pay your own expenses.

The wealthy do tend to be buyers rather than renters.

There is a certain advantage to, you know, renting services and. Housing in terms of flexibility, but it's also real drawback long-term in terms of value and almost always winds up being much more expensive in the long-term. You're not building any equity

and it's expensive to be poor. The items that we were just talking about, you know, as. If you have to finance them, your financing costs are much higher than those people who are more well off. You're buying, as I said, in smaller quantities. So your per unit cost is higher, any sort of flat fees, such as late fees.

That may be a result of things like the financing that you much harder. If you're on the low end of the main economic spectrum, then somebody who's well. Same thing with any sort of, you know, a flat fees, flat taxes, you know, if you were to be unlucky enough to get a parking ticket. Yeah. Let's say it was a hundred dollars.

A wealthy person is just going to shrug that off. Barely be able to remember it five minutes later, whereas somebody who's on the well end of the economic spectrum, it might be. Very damaging. You might really have a hard time even paying your bills because of that one, the

poor people usually have a harder time affording high quality foods, and that affects them in a few ways, such as being overweight, having diabetes and health expenses are some of the most pernicious expenses you will encounter, nevermind the quality of life, detriment that it imposes on you.

And if you do experience a long-term illness, terribly affects your ability to be productive and hold on to good relationships with your family and friends.

And all those things, you know, also affect your mindset. So if you've grown up in a poor environment where people were struggling, he may have  developed sort of a poverty mindset.

And what can happen with that poverty mindset is that you become very. And you become afraid to spend any money. You're afraid of making a quote unquote, wrong decision, even though really, there are very few things that are right and wrong and in the world, it's not like when we're kids in school, they're usually better and poor decisions, but you develop a real fear 

even if you were to have the money to take advantage of an opportunity or buy an item that you need become very slow about those decisions, you agonize over those decisions,

and it becomes something where you become very slow in many aspects of your life. So when I work with wealthier clients there, they make decisions very easily and quickly. And it's becomes a habit for them. They know that when they make a decision, the risk to them is very low because they have so much abundance and they have an abundance mentality.

They think that it's a normal, they think that they are deserving of.

And so they become much more confident in every aspect of their life. And this leads to just a higher speed in which they are able to live their life. And assuming that, you know, we all have

a limited lifespan, they are able to accomplish more in that lifespan. And somebody who has become more fearful, they live their life at a faster pace area, go to accomplish more and make decisions more easily.

When you're poor, you can become to the point where you're almost frozen with your, with your fear

and the speed at which. Affects the timeliness of when you are able to do things.

So let's say that you  actually have the funds to take an advantage of an opportunity or buy an item that you need. Your fear may slow you down to the point where the opportunity bypasses you. Somebody who's wealthier has that mentality of abundance. And who's making decisions easily. We'll be able to take advantage of it where you might miss it.

Other times you may not have the money to take advantage of an opportunity. You might have it later, but you don't have it at the time. And it forces you to miss the opportunity.

Another example of that in a slightly different way. Healthcare. So be you become so fearful of the expenses involved with healthcare, which is understandable that you avoid the preventative care that long-term will save your health and actually costs you us money. Whereas the wealthier person is making different choices and they are taking advantage of preventative health care and avoid.

Some of the health effects of waiting. They're more likely to be able to find a situation earlier and have a very different outcome than somebody who's waiting. The person who waits and the situation is found at a late stage as much poor.

And one of the reasons I'm also telling you some of these things is that there is a mindset also amongst a small percentage of the population who actually believes. And some part of them that having money is.

My feeling from personal experience is that

the benefits of having money far outweigh the negatives associated with having money.

My family, for instance, generations ago had had money and

we'd owned. Uh, we  owned some property outside of box. And a town called Redding Massachusetts. And when I was born, uh, we lived in what was called the carriage house. So this was a large on the property, was a large Victorian home in behind. It was the quarters that had originally been for servants.

And those  who were the drivers and. That had later been converted into a second home on the property, but by the time I was born, it was only a shadow of what it had once been. Apparently my family had originally owned a glass factory in the area and been very prosperous, but within my lifetime, my grandmother was worried.

She wasn't going to have enough money to be.

And the benefits also enter general, you know, from one generation to another are enormous because it always gives, uh, the next generation something to stand upon. It gives them a much better chance of being able to  fulfill dreams. We have a successful.

So if you have the mentality that you're, you're questioning whether or not there's something sinful or corrupt about having money, I hope you'll set that aside.

Another thing that I've noticed that the wealthy do quite well is they understand the concepts of why bridge and that might be financial leverage leveraging their time. It might be. Understanding opportunity cost for instance. So opportunity cost is the cost associated with foregoing something else. So a classic example might be an attorney who can bill had several hundred dollars an hour, or he could go mow his lawn and save $50 an hour.

The wealthy understand that.

The opportunity cost associated with foregoing. The work in order to save $50 is now worth it. That's why so many people will outsource all those type of tasks to others so that they can focus on what is provides them. The, the best benefit.

And some of them worn these type of behaviors through their family.

There's something called the wealth cycle.  The wall cycle basically is that those people who are born into this or learn to do things differently, and they are exposed to opportunities that others are not, they have much more social capital.

Their family has connections. As I said, their family has the best warrior. And one of the reasons I've mentioned lawyers now a couple of times is that that is a differentiator between the lower classes and the rich is that the rich can afford to take advantage of the power of the legal system over others.

So they have that advantage.

Through their connections. They have opportunities presented to them that the poor, if they do not have connections and are poor in connections are not going to be presented with

they've got it. Exclusive club memberships, they go to the best schools and through those schools, they also get connected. So you've noticed that I've mentioned connections there a couple of times, and we'll get back to that as well. When I discuss the kind of things that I think that you can do the wealthy usually also do not depend solely on one source of income.

Most of them have multiple sources of income in effect. I think it was Tom Corley in his book, rich habits. He studied the habits of millionaire. During a five-year study. And he found that 65% of self-made millionaires had three or more sources of income.

The poor on the other hand tend to have one source of income, which is their wages. And if you're in that situation, you understand how precarious that. To be so dependent on one source of income, one employer, for instance, it gives them all sorts of power over you that they may not be aware of, but you are aware of it.

Whereas the wealthy tend to have multiple businesses, passive income. Sometimes they have businesses under several businesses. Under one umbrella. They leverage themselves by having others manage that, manage the businesses.

True those businesses. They may have retirement plan set up. If they're employed by somebody else, they also have entire retirement plans. The federal reserve in 2019. I said the following participation continued to be uneven across the income distribution, less than 40% of families in the bottom half of the income distribution were in a retirement plan compared with more than 80% of upper middle income families.

And more than 90% of families in the top decile of India.

And it's not just savings. They're also putting a significant amount of their savings into stocks. The tax policy center, reviewing some federal reserve data said virtually all of the wealthiest 10% of households own stocks while only about a third or the bottom 50% own.

And so you'll notice that I've mentioned now the time aspect and leverage and that the poor people are trading their time for money on a one-to-one basis. Whereas the wealthy are able to leverage their time and their. Which gives them more time to be able to do other things. And some of that time that they have available, they spend differently.

They are attending things like charitable events, which gives them a greater network to call upon social events, artistic events, time to learn, time, to expand their career knowledge, time to read. Most successful people. According to books that I've read are voracious readers. A lot of people who are self-made, people will read the book a more a week.

I personally would like to read a book a week, but I don't. So I understand if. If you're feeling cue that that sounds like an awful lot

for me. I tend to want to read a book a week, but what I wind up doing is I hate to admit this, but I will, I'll tell you about it is that, uh, I play a lot of video games. And I'm pretty sure that if there's a study and there may be one comparing people who spend their free time reading books, watching TV or playing video games, one of those three, the, and you broke it down by demographics, the successful people would be the ones reading the books middle-income or the TV Watchers and Sarah gamers.

But those at the bottom end of the spectrum would be the. Socioeconomic spectrum would be the gamers.

So after going through all this, what can we do to help you be successful based on what we've talked about here so far?

Well, one of the things that I would say you should do is build an emergency. But tick yearly, if you are one of the people that's dependent upon one source of income.

So an emergency fund is where you set aside in a liquid account, something that can easily be withdrawn, something accessible in cash that will cover about three to six months of expenses.

So this will accomplish a few things for you. One is just by the very nature of the name. If you have an emergency, you've got cash to fall upon. For instance, me RESILIA was, you know, my dog became sick too. It will

affect the mentality that I was talking about. The fear. You will have less fear in your wife. If you know that that money is available to you. Now, the money can not be used for anything else. It does need to be set there, especially for an emergency fund. The NES next aspect to that though, would be to build up your cash reserves, your working reserves so that you do have cash available funds.

So that when expenses come up, that you can,

so now that we've discussed some of these things that the rich may be doing differently, what can you do? What kind of actions can you take? So, one of the first things I would say would be to build in an emergency fund. An emergency fund is generally three to six months. Your expenses that are kept in a liquid account, such as a checking account, and this will accomplish two things.

One, it will be there as the name implies in the case of an emergency. For instance, for me recently, he was, my dog became sick more for you. It might be say that you lost your job and you needed something to fall back. The other thing it will do is what I had ODed to before, which is it will help change your mentality from one of a fear mentality, a poverty mentality to one of an abundance mentality, and it will allow you to be able to

speed the pace of your life and your decision. And what will further do that is that once you've got that emergency fund set up, then you can also build a working cash fund that will allow you to do things like be able to buy in quantity

that will help lower your unit costs on things and will further. How to get you away from the poverty mentality that you may have had in the past

to help fund some of this, it would be good to be buying any depreciating items. Second hand.

I don't want you to buy new second. I don't want you to buy new items that are depreciating assets. I'd rather you let somebody else take the hit on the depreciation and the financing. So if you can buy something secondhand, you'll pay much less for the item and you won't. I need to finance it as well.

This then we'll also want you to be able to do things like invest more

at work. If you have a 401k, I'd like to see you max out that 401k at the very waist I'd like to see. Invest enough to be able to get the full company match.

That is what we would call free money. So I definitely want to see you at least get that full company match from your employer. If you have such a thing,

additional things that I think you can do would be what we're talking about. Very successful people doing. Reading initially you might help too. If you feel like your financial knowledge is not sufficient read books about financial topics, if you prefer to listen to things like this podcast, obviously I recommend that.

You may want to read or study or go to school to help improve your skills.

All these things can be done

in a way that will help you move in the right direction. Just a small chain. Can have huge effects over time. So you are not going to be able to do all of these things all at once. Like I said, my first priority would, if you don't already have one would be to set up an emergency fund. So I think that covers our topics for today.

I hope that you've got something from this. And a lot of what we've talked about today will be a foundation for much of what we'll talk about in the. So in closing, I'll tell you that in future episodes, we've got the topic of inflation, which I think will be a timely topic for you and what to do about it.

We'll be talking to a real estate professional who is also a certified public accountant. So I think that'll be very interesting for you. 'cause some of you may not own a home. It would poet I, to others of you may be working to change homes or better understand what the value in the future of your home's value is.

We'll also be talking to an individual who. Was very successful in managed to bring himself out of poverty. So I hope this was all helpful for you today. And until the next time be one of the good ones,

the end.