The vast majority of Americans are not rich. Why?
Reasons vary. But the main ones are a) a knowledge deficit and b) the wrong mindset.
Let’s start with the knowledge deficit.
It should not surprise you to discover that most millionaires did not get there by making a hit record, playing third base for the Yankees or founding a computer company in their garage.
And, contrary to popular opinion, most of the nation’s wealthiest individuals did not get rich by starting their own business.
Yes, almost all of the super-wealthy did, like Sam Walton, Bill Gates and Jeff Bezos. So did many ordinary men and women of far less affluence. But most folks with a seven-figure net worth did not.
We live in a highly competitive world. Great new ideas are rare – and starting a new business is risky. Four out of five businesses fail in the first five years.
The vast majority of rich Americans got that way by:
- Maximizing their incomes
- Living below their means
- Religiously saving the difference
- Investing their savings at a high rate of return
- And letting the money compound.
If it’s that simple, you might ask, why aren’t more people rich?
Again, most people have a knowledge deficit. They’ve never thought seriously about actually getting rich or ever investigated the process.
There are other hurdles, as well.
Some people don’t save. Some save but don’t invest. (That means their returns are safe but low.) Others invest but not successfully. Still others invest successfully but can’t keep their hands off the money. (They have to buy that boat, take that trip to Disney and remodel the kitchen.) As a result, their investments can’t compound into an amount large enough to create real financial independence.
However, more people in this country are richer than you may realize.
And, incidentally, rich has nothing to do with your income. If you are a high earner and a big spender, you can be just as broke at the end of the year as someone standing in the unemployment line.
Wealth isn’t determined by looking at an income statement. It’s the balance sheet, assets minus liabilities.
With a high net worth, you can generate your own income rather than depending on a job or the government.
In this country, you need a household net worth of $1.2 million to get into the top 10%.
Set aside the small fraction of this number that inherited their money and you’ll find a similar mindset.
These folks don’t seethe with anger about “the rich.” They admire and want to emulate them.
And they don’t just dream of getting wealthy. They have a goal – an actionable plan – to get there.
Some people today are obsessed with economic inequality, something that has existed since the dawn of civilization.
Talk to them, however, and you will almost invariably find that they’re not overflowing with compassion for the poor. They are filled with resentment toward the rich.
That attitude is hard for me to comprehend.
As a boy growing up in the little town of Staunton, Virginia, in the heart of the Shenandoah Valley, I soon learned who the wealthiest man in town was: Jake Smith.
Jake and his brother started a trucking company – Smith’s Transfer – with a single truck and two limber backs.
It eventually grew into the biggest truck line in Virginia – and the eighth-largest in the nation – with annual sales of more than $250 million.
(You may have seen their 18-wheelers on the highway with the logo that, as a kid, I thought was sheer genius: “Haulmark of Service.”)
Locals didn’t just admire Jake Smith because he was rich and successful. They admired him because he was a huge positive influence on the community.
He brought jobs, growth and prestige to the area. He also brought big-time philanthropy.
Whenever we needed a theater or a new building for the YMCA, fundraisers knew to call Jake Smith first.
I grew up in a solidly middle-class household. But when Jake Smith walked by, I thought, “There goes a guy who worked hard, took big risks and made things happen.”
As a teenager, I got a job working maintenance at his local terminal. It was tough work with low pay (exactly what I needed since my job skills were nil).
Jake Smith’s story is not a glamorous one. But he was an inspiration to me.
Contrast my mindset as a young man with the folks who complain today that what sets the rich apart is greed, selfishness and exploitation.
What a laugh.
For starters, you can be the greediest person in the world and no one will give you a dime until you offer them something of value: labor or products.
And, okay, we’re all rationally self-interested, or selfish, if you prefer. You wouldn’t live long if you weren’t. But why is that wrong when you set up a business to meet people’s needs and provide jobs?
And exploitative? Someone will have to explain how it’s exploitative to hire someone who voluntarily agrees to work – and stay on – for the pay and benefits offered.
Thank God Jake Smith “exploited” me as a young man. Otherwise, I would have had to leave “Job Experience” blank on my first resume.
With the notable exception of professional sports and entertainment, I’ve rarely seen people with anti-business, anti-wealth attitudes get rich themselves. They tell themselves – and anyone willing to listen – that they’re not morally compromised enough to get rich.
(I’m holding the world’s smallest violin right now. And I’m playing a special song just for them.)
In truth, their bitterness is a cancer that stops others from achieving their economic potential.