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Asset Vs. Liabilities - Why the rich get richer and the poor get poorer

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A7x:
We’ve all heard that saying “the rich get richer and the poor get poorer” and I have to say that this fact is actually very true. There is however a very good reason for this and it has nothing to do with rich people being bad and taking money away from poor people as the saying sometimes implies. It has mostly to do with financial education and spending habits.

What do the poor & middle class do?

The poor and middle class usually stay ‘poor’ and ‘middle class’ because of their mindset and financial education. Once they get more money than they need for expenses, they usually spend it on liabilities. The energy, time and labour from working for their money now effectively goes out the window and down the toilet. That money is never seen again. Here are some examples of purchases that the poor and middle class make with excess funds:

-Food
-Entertainment and entertaining others (parties etc.)
-Costly electronics
-Trips
-Household gadgets
-Clothes & jewellery
-Vehicles



What do the rich do?

-The rich purchase assets that create positive cashflow, portfolio and passive income. Some examples are:
-Stocks, bonds, mutual funds, etc
-Investment real-estate
-Businesses



Cash-flow is the amount of money that they have coming in on a regular basis from their income producing assets. It is how they retire rich and get richer and richer.

So how do they purchase expensive things like CARS,HOUSES,etc? They use their money to purchase assets and then use their portfolio or passive income from the assets to purchase the same liabilities that the poor and middle class do. The difference in their spending is that their money doesn't go out the window and down the toilet, never to be seen again. The money that the rich worked for, goes to creating more money. In this way, their money begins working for them and they can retire rich. The best part is that even after they retire, their money begins to compound and they get richer and richer!

yonipspy:
yes definitely very very true

gusto ko nga yung kay Rober kyosaki ba yon? meron ka den makukuha idea?
 ::)

TobleRONe:
another big difference din is capital.

poor and middle class very limited capital. most walang magagamit na collateral para umutang sa mga institutions para makapagsimula ng business. since limited ang capital, madaling gayahin ang mga negosyo na itatayo, usually food cart, sari sari store, etc.

while rich people, kahit as low as 1m capital, mahirap ng gayahin ng poor people ang business na itatayo or investment ng mayaman ng mayaman  ;)

ang mga middle class earner kung kuripot lang sila or matipid, kapag umabot na ng 1m mark ang kanilang ipon, invest na agad nila sa real estate lalo na sa mga pre-selling na property kikita agad sila ng malaki.

A7x:

--- Quote from: TobleRONe on September 22, 2014, 08:36:37 pm ---another big difference din is capital.

poor and middle class very limited capital. most walang magagamit na collateral para umutang sa mga institutions para makapagsimula ng business. since limited ang capital, madaling gayahin ang mga negosyo na itatayo, usually food cart, sari sari store, etc.

while rich people, kahit as low as 1m capital, mahirap ng gayahin ng poor people ang business na itatayo or investment ng mayaman ng mayaman  ;)

ang mga middle class earner kung kuripot lang sila or matipid, kapag umabot na ng 1m mark ang kanilang ipon, invest na agad nila sa real estate lalo na sa mga pre-selling na property kikita agad sila ng malaki.

--- End quote ---


In my opinion, financial education is the answer.. How can the poor and middle class raise a capital to buy asset producing cashflow? It's starts with paying yourself first. To pay yourself first means simply this: Before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save. The first bill you pay each month should be to yourself. This habit, developed early, can help a person build tremendous wealth.

Why pay yourself first?

If you’re just getting started in the Real World, saving may seem impossible. Here are three reasons to start saving now instead of waiting until next year (or the year after):

1.When you pay yourself first, you’re mentally establishing saving as a priority. You’re telling yourself that you are more important than the electric company or the government. Building savings is a powerful motivator — it’s empowering.

2.Paying yourself first encourages sound financial habits. Most people spend their money in the following order: bills, fun, saving. Unsurprisingly, there’s usually little left over to put in the bank. But if you bump saving to the front — saving, bills, fun — you’re able to set the money aside before you rationalize reasons to spend it.

3.By paying yourself first, you’re building a cash buffer with real-world applications. Regular steady contributions are an excellent way to build a nest egg. You can use the money to deal with emergencies. You can use it to purchase a house. You can use it to save for retirement. Paying yourself first gives you freedom — it opens a world of opportunity.

-=Kurabo=-:
one factor could be, Psychological wallet for example you're earning 20k then you get a bonus of 30k, more or less most of us would have the tendency to spend those 30k on cellphones,clothes,shoes etc. because subconsciously we are panicking inside and we'll force ourselves to spend it all so we can go back to our 20k identity level

Most poor people(including me) issue is dealing with the next problem without having the bandwidth to deal with what is down the pipeline. Financially, we have a little room for error and the magnitude and intensity of that effect is very different compared to the rich people but in the end, poor people always root of mistakes is the lack of proper planning.

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