Wednesday, June 20, 2012, AM | 2 Comments
The economic conditions in the U.S. is quite bleak. Unemployment is still high and is over 8%. In many neighborhoods across the country, home prices keep falling. The stock market is quite sluggish. Under these circumstances, many households don’t think about getting rich. They are happy to just get by with what they have.
According to a survey released by the Federal Reserve on Monday, June 11, 2012, inflation-adjusted median household net worth declined from $126,400 in 2007 to $77,300 in 2010, back to where it had been in 1992.
That means an 18-year wealth gain – from 1992 to 2010 – went down the drain.
The rich is getting richer while the poor is rubbing hands in frustration…
The rich is getting way richer but the poor is worried about where the next meal will come from.
We all should remember and must realize that this is the United States of America – the richest and most bountiful country in the world. Poverty should not exist here.
- In 2010, the top 10% of earners had a median net worth of $1.19 million, or 192 times as much as the median wealth of $6,200 of those in the bottom 20%.
- In 2007, the top 10% had 138 times as much wealth as the bottom 20%.
- In 2001, it was 106 times as much.
As you can see the gap between the top 10% and the median of bottom 20% is widening – from 106 times to 138 times to 192 times as much as the poor.
What is the secret of the rich?
The secret may be hard work or better yet smart work, entrepreneurship, in addition to good luck.
Three areas the rich may be doing better and smarter to not only build better financial life for themselves but build wealth:
The rich avoid bad debt…
The rich play it smart. They borrow to increase their assets. They don’t borrow to waste the money.
To them, there are two kinds of debt: better debt and worse debt.
With better debt, the rich increase their assets.
To them worse debt is when folks borrow money to buy things they don’t need.
With debt of any kind, if it does not grow your portfolio of assets, then it’s a waste of money and should be considered worse debt.
That’s why worse debt must be cut and eventually eliminated like a bad dry tree so that new tree can grow instead of the old one.
The rich invest smartly…
The rich invest in sectors of the economy where dividend is paid and reinvesting it.
Equities do not necessarily perform well in a slow-growth environment.
That’s why the rich diversify, not just across stocks, but also across asset classes.
In order to eliminate loss in their equity investments, the rich believe in dollar cost averaging.
The rich don’t panic but stick with their investment strategy.
The rich understand business better…
Whether they have learned about the business academically or learned it through experience, the rich may understand the business better.
If you believe you are lacking business know-how or lacking plain business aptitude, then educating yourself about it should be your first step to take.
You can go back to school, receive specialized training about the business.
You don’t have to go to college for 2 or 4 years. A couple of courses in your local community college will do the job.
Consider turning a hobby into a side business, whether you are happy with your current job or not.
In a Nutshell
There are numerous ways the rich follow to make themselves richer. But following the above 3 ways will surely build you a better financial life.