Why wealthy people get more wealthier

Please note my title does not say ‘why rich people get more richer’ because rich people are not necessarily wealthy. Only few rich people who are smart with money are wealthy! Let us try to answer why wealthy people get more wealthier.

Wealthy people are not slaves to money – they do not worry about it or get limited by it. Simply put, a rich person has more money and so are his/her expenses. The striking difference about this is the ability to sustain the money – a rich person may not sustain his/her money but a wealthy person will succeed on doing that.

Suppose Sergio earns R 70 000 per month from his job after tax and his total expenses amounts to R 68 000, then he can only invest or save R 2 000. In the South African standards, Sergio is indeed rich because he has more money than an average middle income earner. Sergio can live in the most expensive suburbs of South Africa and drive the most flashy cars on the market. But can he sustain this luxury life when he can not work? Possibly but not sure about that!

Additionally, Thabo earns R 15 000 per month after tax and his total expenses are R 10 000. In the South African standards, Thabo is poor but he can save or invest R 5 000. If Thabo is financial literate he can invest his money and become wealthy even though it may take long time.

Why does money follow the wealthy people?

There are several reasons why money is attracted to people who are wealthy. Money behaves the same as romantic love – money will fall in love with someone for different reasons. The following are some of the reasons why wealthy people get more wealthier:

1. Wealthy people understand money.
2. People who are wealthy invest their money in the businesses they know or believe in.
3. Wealthy people take more risk as a result, their expected returns are also high. (Suppose you and your friend invest R 2000 and R 100 000, respectively in an investment with 20% return. Your gain will be R 400 but your friend will gain R 20 000).
4. They solve a problem and money will have to follow them as a reward of a job well done.
5. Wealthy people believe that they do not know it all. Therefore, they seek the help of professional people. The problem of poor people is that they think a college degree makes them more clever and intelligent than everyone else.
6. Wealthy people also fail just like everyone else but they take the responsibility and hence they learn from it faster than the people who blame others.
7. Show off is not the game of the wealthy people but only the rich. Wealthy people are humble and their value is not tied to what they have. So they do not spend money to impress anyone.
8. Wealthy people do not follow the crowd. Regardless of how profitable an investment is, if many people are investing in it, the share of profits will be lower.
9. They understand the power of giving for a good cause.

In a nutshell, money has its principles that can make it fall head over heels with you if you master them. Recall that the more you are willing to lose, the more you will gain – never underestimate this principle. The powerful principle of giving emanates from this. So does this make sense why wealthy people get more wealthier?

The Finance IQ

The author is an Investor  and a Software Engineer who provides consulting services to several Financial Services companies. He has background in Actuarial Science (BSc) and Financial Engineering (BScHons; MSc).

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