Becoming Wealthy One Bite at a Time
By Ric Edelman
From Inside Personal Finance.
A lot of people think rich people become rich because they either make a lot of money or they inherit a lot. But that's not true for the vast majority of Americans. In fact, most of the wealth accumulated in this country was accumulated over a lifetime of saving. You see, the reason rich people get richer and poor people get poorer is that rich people keep doing the things that got them rich in the first place, while poor people keep doing the things that keep them poor. So, let's examine how rich people became, well, rich.
To begin with, poor is a state of mind. "Broke" is a state of wallet. You can fix being broke; it's not so easy to fix being poor. How do you fix being broke? There's no magic: You just work hard, get a little money, save some of it and repeat this process for very long periods of time. Eventually, you won't be broke any more. But the poor person next to you will remain poor - because they will spend any small amounts of money they might come upon, preventing themselves from accumulating wealth. If you don't believe this, consider the clients of our firm. Based on our survey results of clients for my book Ordinary People, Extraordinary Wealth, very few of them were born into wealth. As youths, only 12 percent were given any money from parents or grandparents, and even then the typical gift was a savings bond, insurance policy, or cash. Only 3 percent were given stocks as a child. Less than 7 percent have received an inheritance.
Of those who did, their inheritance was a small one - 33 percent of those who got an inheritance obtained less than 10 percent of their wealth this way; only 4 percent got half or more of their wealth through inheritances.
Also, very few (just 6 percent) own businesses, so scratch that as the way to wealth for ordinary Americans. And forget the lottery, too; only two clients have won, but neither made millions. One won an amount less than 10 percent of his net worth, while the other says his winnings constitute 11 percent, 20 percent of his total savings. Forget insurance as a source, too. Only 6 percent of clients have gotten any insurance proceeds at all.
Despite these "handicaps", the EFS clients who shared their stories have accumulated, on average, about $500,000. Where did they get it? The answer is simple:
More than 95 percent obtained their money through their own efforts. They worked hard. Got an education and a good job. Had kids, and worked even harder. Through it all, they managed to save a little money here and there.
They didn't begin with $100,000 to invest. Instead, they saved what little money they could scrape together, and they invested it as often as they could. As EFS clients have revealed, the money they invested was always in small amounts, and usually less than $1,000 - often, much less. And yet, investing small amounts was enough to produce wealth for them. But is it really that easy?
Continue: Ways To Become Wealthy