Back when I was a kid, there were three distinct economic classifications to separate us: Poor, Middle-Class and Rich. Nowadays we have several classifications: Poor, Working-Poor, Broke, Tax-Payers, Rich and Filthy Rich. Everyone says that the middle class is disappearing and they are right because it has been replaced with working-poor, the broke and the tax-payers. We all know that working-poor are people who work full time, but can’t afford the rising costs of housing and utilities and still be able to eat. Broke people have a job and make decent money, yet they always live paycheck to paycheck because they just can’t stop spending their money. Tax-payers are those who get a good job, have the big houses and fancy cars but are forever stuck on the low side of the higher tax bracket I.E. never really make it rich.
My classifications may seem silly but I think they represent some of the major challenges that are affecting North Americans within the last few decades. We all try our best to build wealth over our lifetimes yet the rich keep getting even more wealthy, increasing the gap between us that much more. So what the big secret that the rich use to make even more money? It’s using money to make more money.
“Oh wow, genius! Tell us something we don’t already know!”Perhaps I should specify it’s the way rich people use their money. You see, the majority of the population spends their money on liabilities. The Broke people spend their money on booze, cigarettes, eating at restaurants, gambling, $300 jeans, $500 sunglasses, Ipads, the latest Iphone, Ishoes and I-nterest! The Tax-Payers have that big house with a monster mortgage, the motorboat, the RV and the luxury vehicles. These items end up costing even more money because, well, the banks are the ones that actually owns all those assets. By the time the Tax-Payers own them out right, these assets that are now depreciated liabilities except for the house. The house might eventually go up in value, but once you factor in the thousands of dollars spent in interest, it’s barely considered an actual asset until you sell it or the bank takes it if you default on money they loaned you.
Rich people use their money to buy assets that actually pay them money. For example, a rich person would make a large down payment on a house, then turn it into an asset by renting it out to the “Broke” people who could never dream of ever owning a house. Eventually the house is paid off and the income coming in will be invested into an new rental property or other investment like stocks or bonds or perhaps a business venture of some sort.
The key to building wealth is setting up multiple streams of income from investments and re-investing the capital in even more investments down the road. As I’ve said before it’s really no secret at all, it’s just that the majority of people don’t have the initial money to make money.
So now what?As I wrote in my previous post, most people tend to invest their wealth in garages full of junk. If we can break the mentality of mass consuming, perhaps we can at least get a small taste of wealth by using our money to make more money before we die. “But Steee-eve, I don’t make a lot of money to inve-essst!” To that I say bull. I’ve seen families come to Canada with absolutely nothing and end up successful, wealthy business owners. It wasn’t government hand outs that everyone will say is the reason either. One particular family I know worked their bloody butts off at multiple dead end jobs and saved every penny to start a business of their own. Then, they worked their butts off and opened a second business. They then sold both of those businesses to open an even bigger, more successful franchise employing many local people.
It takes hard work and dedication to make extra money to invest but if you are dedicated and make smart financial choices, eventually you might get a piece of the wealth you desire. As with any desire, start with a thought and create some attainable goals. Once you achieve them, make even more goals and aspire to complete them. You may never become filthy rich, but then again do you really need to be? That’s a whole topic for another time.