Rich people think differently. They have a different mindset. A mindset for gaining assets instead of liabilities. They work hard on their goals that they set and continue to achieve them. Living paycheck to paycheck is not something they do. So why do rich people keep getting richer?
My Rich Boss man sharing some advice.
I am going to start off with a story.
Back in 2016, I was working for a millionaire on his horse farm. It was New Years Eve and the man came up to me and said
“Steve, what are you eating tonight?” I answered “ I am not sure yet.” The millionaire went on
“My wife is making black eyed peas, collared greens, and ribs.”
I said “yum, why do you eat that on New Years Eve?”
He replied “The black eyed peas are for the coin change, collard greens is for the green money, and the pigs fat is for the fat to help you last through the year.”
Then he said something that set a fire inside of me.
“We eat this every year. This is why we are rich and you are not.”
Rich people think differently. He was not rude about what he said, he was absolutely correct. He was rich and I was not, and it was time for me to learn the ways of how rich people operate, and why rich people keep getting richer.
Here are 6 ways Rich people keep getting richer.
1. They have an Emergency Fund:
One thing rich people have is an emergency fund. An emergency fund is enough savings that can cover you in an emergency.
Rule of thumb is that an emergency fund should be 3-6 months worth of your pay. Personally, I like 6-8 months, and Mrs. FE and I hold about 10 months worth of cash in an emergency fund.
Emergency funds help to stop going into any investments and taking out cash. You have enough cash in your fund to cover you in case you lose a job.
It is enough to cover unwanted expenses like injury, accident, or even damage done to an asset like a house or car.
These funds help cover you. A rich person always has this. It helps protect their wealth.
If you want to think like a rich person, it is time to create an emergency fund.
2. Pay Yourself First:
In the Richest Man in Babylon, it talks about paying yourself 10% of what you earn first, and allow the other 90% to pay for anything else.
Warren Buffet says wisely “Do not save what is left after spending, but spend what is left after saving”
One thing rich people do that helps keep them rich is that they pay themselves first. They have money automatically withdrawn from their savings into their investments. They put it away so they do not have the ability to touch it.
Most people when they get paid go off and spend their money on bills, food, going out, and at the end of the month whatever is left they save that little bit.
It is a poor way to save money. If you save money first then you will have to keep your expenses down.
This is one way rich people keep getting richer. They do not live paycheck to paycheck. The rich have a higher savings rate and realize that saving and investing the money is the way to make your money work for you.
The rich have money work for them instead of working hard for their money. It is a tool. Money to poor people is a necessity to live as they do paycheck to paycheck.
“Do not save what is left after spending, but spend what is left saving”
3. Not Keeping Up with the Joneses
Oftentimes, people want to get into keeping up with the Joneses. It is true. The new PS5 just came out and everyone wants one. It is the big hit of the year. You are not cool unless you have it.
Well, this is how the concept of the Jones’ work. We want to keep up with our friends in buying that new gadget, that new car, new clothes, and buy lavish drinks and good food.
Rich people do not spend money on those things. Those things come and go. Rich people buy assets instead of liabilities.
Robert Kiyosaki wrote the book Rich Dad Poor Dad, in the book he is famous for saying “The rich acquire assets, and the poor and middle class acquire liabilities”
There is a lot of truth in this statement. I have a friend that constantly talks about money and how he does not earn enough. His financial literacy is quite low. He buys cars, he is getting a new house, and still has to help pay off his wife’s student loans.
I am not saying that he is a bad person or a poor person, I am showing that his mindset is about the material things you can have now.
We have to think about what we want out of life. Rich people delay gratification, and are able to withhold their money spending.
They use their money to create more money. If you want to know why the rich keep getting richer know that they do not keep up with the Jones’. They buy assets that help create them more wealth.
“the rich acquire assets, and the poor and middle class acquire liabilities”
4. The Snowball effect:
The snowball effect is when a tiny snowball rolls down the hill and gets larger and larger as it rolls. We talk about things snowballing.
The rich use snowballing with their wealth. It is a matter of using compound interest to create more wealth.
If you want to know why the rich keep getting richer, compound interest is the assistant that keeps giving and giving.
Compound interest is a powerful tool. If you have $10,000 saved up in a low-cost index fund bringing in 7% per year that is $700 per year you are reaping from that $10,000.
At $100,00 with 7%, you will have a return of $7,000 coming in year after year and growing.
$1,000,000 at 7% would be $70,000 per year in an annual return. At $70,000 per year you will no longer need to work. If you spend less than that maybe you can stop working earlier in life.
As this money grows it snowballs into something bigger and bigger. Rich people use compound interest to help snowball their investments and savings into something larger.
Charlie Munger famously said “The first $100,000 is a B*tch”, It is quite difficult for the average person to amass this type of wealth. Once you hit that number your snowball will grow and grow. It will be faster than it ever has.
Rich people work hard and early on investing money in order to let compound interest have the time needed to create even more wealth.
5. They spend Less on Taxes:
The rich love to avoid not paying taxes. It is easier for them. They know how to not pay it, and they use the law to keep them rich.
Poor and middle class people pay the most taxes in the U.S. It is not by percentage, it is because they just do not know how to avoid not paying taxes.
Steve Jobs was famous for taking a salary of $1. The tax on $1 is basically nothing. So how was Steve Jobs so rich. He was the largest stock owner of Disney and he owned tons of stock in Apple. Taxes on dividends and capital gains are not much at all.
Qualified dividends and long term capital gains tax are taxed based upon your income level. If you are married and make under $80,000 you pay 0% of taxes on dividends and capital gains.
Rich people make businesses and use business to help offset taxes. They use the laws for their advantage to not have to pay taxes. This is another reason why rich people keep getting richer.
If you want to gain more wealth figure out how to pay less taxes. I moved abroad, and therefore I do not have to pay any U.S. taxes of salary under $105,000 USD. I pay local taxes on my pay, but that is not much at all.
6. They are Goal Setters.
Another reason why the rich keep getting rich is that they are goal oriented. It doesn’t matter if they fail they will keep striving to achieve success.
Success breeds success. There is no luck in the world. We make our own luck by working hard. If you work hard on your goals then piece by piece and step by step you will achieve your goals.
The rich keep getting richer because they know how to achieve success. Everyone thinks it is so hard to be successful. If you fail then maybe you are not that good. Well, rich people think differently. They go out and achieve their goals.
As their wealth keeps growing they are able to endure more risks. This lets them be able to be more creative and reach their goals.
If you want to be rich it is time to set some goals for yourself and work hard on achieving them.
My wife and I are trying to hit financial independence. Our goal for 2020 is to save 60% of our income. Right now, we are saving anywhere from 58%-70% every month. If we fall short one month, we will try to right the ship the next month.
Steps to take to get on track with the rich
We have talked a lot about why the rich keep getting rich, now it is time to make some efforts to change your habits and achieve what the rich are achieving.
First: Make an emergency fund to help give yourself a good buffer for your financial future.
Next: Make some goals for life, your job, and your financial future. Each little step helps to achieve your goal. Even investing just $1 a day can help the snowball of riches flow.
3rd: Pay Yourself First. It is time to pay yourself first. Save your money first then pay off your bills. This will create a good habit of saving.
Lastly: Stop trying to keep up with the Jones’. The richest people in the world do not buy big cars, big houses, and as much as they can. They save, live frugally, and have their money work for them. It is time to do the same.
I hope you set some goals and make your financial future a better one. Take what the rich do and apply it to your life.
” Spend less than you make, stay out of debt, and invest the rest”
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.