Do you think the American Dream still exists? Well, not unless you inherit a bunch of money from your family, right? Do you believe that the rich just continue to get richer and the poor get poorer? Let’s drill down to some specifics and let go of any hyperbolic rhetoric that you’ve heard before to see where the truth lies.
Class Mobility
When you hear the top 1%, what comes to your mind? Crazy egomaniacs crushing their underlings getting rich off of exploiting the poor? If you think that, you’re not the only one. The top 1% get a lot of bad press and hate by others out there. Is it justified?
According to www.money.cnn.com, people tend to think of the top 1% as this monolithic group that stays the same where no one else can break into this group or maybe even people are being “kept out” of the 1% unless they’re “old money.” The reality is that this group changes annually due to the fact that incomes can vary widely going from year to year. Were you aware that 11% of Americans will become a part of this coveted club at least for one year during their prime working years of age 25 to 60? Does that surprise you? It is important to note that only 5.8% will stay there for two or more years. A much smaller club to be part of. What about maintaining it for 10 years? It goes down further to only 1.1%. The key to these numbers is that people don’t just become rich and stay there, there is a lot of movement up and down of those into and out of that top tier.
Also factored into the top 1% moniker is not only income, but gains on stocks, real estate, and businesses. These can vary widely each year so it’s easy to understand how people can move in and out of the top 1% slate.
Ending in 2013, with a 22 year look back, the IRS looked at 400 taxpayers in terms of income and 72% of those achieved the top rank only in ONE YEAR while only 3% retained for 10 years or more. What do these results tell us? Per Mark Perry at the American Enterprise Institute, those people who feel that it’s a fixed club and that no one else can get in would be dead wrong. That is simply not the case.
Whether you’re including full assets or only talking about income, the same holds true. While just over half of Americans reach the top 10% at least once in their careers, only 14% of those stay there for 10 years or more. It’s important to note on the bottom of the spectrum, as much as 54% of Americans will be near poverty for at least one year by the time they hit their 65th birthday. The great news is that most do not stay there.
Self-Made?
Now that we see that there is a lot of mobility between the classes, let’s take a look at those evil billionaires and see how they inherited all of their wealth.
Per www.cnbc.com (2019), out of the 2,604 billionaires in the world, 55.8% were self-made. That means that they DID NOT inherit the money. They weren’t born with silver spoons, but instead worked hard to achieve a level of success that most can only dream about. Another 30.9% of billionaires made at least some of their wealth themselves while only 13.3% inherited all of their wealth. Only 13.3%! Is that what you thought? That definitely goes against what most people think about generational wealth. People believe that everyone is trapped at a level and cannot escape. That is absolutely not statistically true. There is a lot of mobility within each group and even out of it. People move up and down within the spectrum.
The data also showed that there is a gradual increase in the proportion of self-made billionaires. This was even including the fact that there was a broad weakening of asset markets and depressed global growth prospects. As per the report by the firm Wealth-X, this highlights the importance of entrepreneurship in creating and preserving substantial wealth.
What’s really mind blowing is the fact that almost all of the current RICHEST billionaires are self-made. Some biggies include Jeff Bezos (Amazon) and Larry Page & Sergey Brin (Google founders). Actually, in 2018, the number of billionaires and their net worth both fell. A reduction of 150 billionaires from the previous amount of 2,754. The net worth fell from $9.2 trillion to $8.6 trillion.
Of course, even those self-made billionaires did not succeed on their own. Technological advances allowed a whole new group to set themselves up for success. We all know the story of Mark Zuckerberg that started Facebook out of his dorm room. Less than two decades later, he’s now worth more than half a trillion dollars. Those ultra-successful billionaires also understand that they didn’t succeed by a good idea alone. There was also a lot of luck involved too. Some just being at the right place at the right time. Warren Buffet has been known to acknowledge the role luck has played in his success. In 2010, he said, “I was born in the right country at the right time.”
Let’s take a look at a graph detailing where these billionaires were created.
Making Good Choices
Let’s look at some theories to help you be on your way to be a billionaire.
Create Opportunities
Study Hard: Billionaires don’t happen by accident; you should study hard. Topics like finance and entrepreneurship can help you identify consumer needs and help fill them. Careers in the STEM field can increase your chances of getting a job that pays very well. Read about other successful billionaires to see what daily habits they embody.
Save Money: Set aside money for investments. As little as $20/per paycheck can make a big difference. Using a high-risk option will help your money grow faster.
Start an IRA (Individual Retirement Account): This is incredibly important to start as soon as you start working. Yes, even at age 15 or 16.
Pay off your Credit Cards: It’s hard to get ahead when you have looming debt over your head. Since higher interest rates are prevalent, debt will continue to grow and drain you.
Make a Five-Year Plan: Evaluate how to use your money. Will you invest? Start a business? Collect interest? Quarterly or even annually (at a minimum), evaluate your financial goals and refer to them regularly. Write remainders down (yes, even on sticky notes on your bathroom mirror) to keep you focused on your financial goals.
Investing
Buy Real Estate: Real estate is a long-term investment that continues to grow in value over time. Real estate is typically a great return on your money. Properties can be flipped, rented, or developed for a variety of options for investment in real estate. It’s important to note that you should refrain from investing in an artificially inflated market where prices are higher than typical. This happened during the housing bubble of 2008 (subprime mortgage crisis) and we are also experiencing it right now. Try to buy investment property during a buyer’s market, not a seller’s market.
Invest in Business: Investing in a business or starting your own is a solid way someone can make money. Some great ideas are franchises, small businesses, and direct sales opportunities where you have very little “start-up” money needed. Green energy investment may be a good option due to future government regulations allowing many opportunities to invest and increase.
Buy and Sell Stocks: The stock market is an incredible place to grow wealth. Most stocks appreciate over the long run. Stay the course and ride out the small increases and drops looking more toward long-term growth. If you’re looking for short term gains, I would stay away from the stock market due to potential for losses in the short run. Instead, look for investments that incur less potential risk, even though you may accept lower rates of return.
Open a Money Market Account (MMA): They may require a higher minimum amount (to open) compared to a regular savings account, but can accrue twice the amount of a traditional savings account. High yield MMA’s carry more risk, but it’s a good place to park your money and leave it there. Perfect place for longer term investments.
Invest in Government Bonds: If you’re looking for almost zero risk, government bonds, or CDs are a nice option to choose that still yield slightly more than your traditional savings accounts. There is no risk of default. A safe bet.
Maintaining Wealth
Consult good financial planners for advice: Unless it’s your business, being huddled over the ups and downs of each stock can be time consuming and overwhelming. Instead, get out and live your life and leave it to an expert. Find a recommended, good, trustworthy planner to help keep your accounts swelling with excess funds. After all, that’s their job.
Diversify Portfolio and Investments: It goes without saying that you shouldn’t keep all of your money in one place. That is dangerous where you open yourself up to incredible losses. Consider real estate, mutual funds, bonds, and other investments to help balance risk and reward.
Make Smart Money Decisions: Stay away from any get rich quick schemes and look for more tried and true ventures that will grow over time. Commit to a lifetime of investing and making money. Focus on the marathon, not the sprint. If there ever is a doubt, be conservative with your investments. Let your interest accrue while you ride out a questionable market. If something seems too good to be true, be careful. Do your research and don’t act too fast.
Know When to Get Out: You may experience some situations where you may need to decide to get out of an investment before it delivers you a huge loss. That rental property that’s a money pit! It may be time to go ahead and get rid of it before it drains all of your profits. If you procured a financial planner for advice, this is where you should defer to their expertise. Don’t forget to listen to your gut.
After looking at this list from WikiHow, we know that doing all of these things won’t necessarily make you a billionaire. However, they are all tried and true recommendations of growing wealth. Instead of trying to get to the end goal of being a billionaire, it’s better to focus on net worth growth over time. Profit is profit. Daily smart decisions with your money will go a long way.
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