Once you have your own wealth which you create by learning how to save, the choices for investment vehicles that both protect your capital and make it grow is the next dividing line between those who have wealth and those who create financial riches. The larger you grow your wealth, the better financial ‘games’ you are permitted to play.
An accredited investor (individual), a person with a $200,000 annual income track record ($300K combined spousal income) or a million dollar net worth, is a ‘legal status’ in the investment world as defined by the Securities and Exchange Commission (SEC)[i] where certain investment vehicles, heretofore unavailable, become available. It would actually be a breach of ethics and illegal in certain instances to offer such investment opportunities to individuals that do not meet the standards. Why? In many instances the investments offered at this level involve a degree of risk that a non-accredited individual could not financially reconcile, or perhaps survive, if the investment went poorly. Simply put, the average person could not afford the loss, whereas the accredited investor could financially recover due to a significantly higher cash flow. That is not the asset class I work with as a wealth advisor. I’m simply pointing out that such things are in fact possible and available.
So, do the rich get richer? Yes, that’s usually their game plan. They got that way by becoming financially intelligent and effective and aren’t likely to intentionally go backwards. As a direct result, many people who achieve resounding financial success usually put their money to work in creating things that offer opportunities to other people. Businesses that need workers (jobs), that buy materials (supporting other businesses), and offer products or services (that make life easier or more enjoyable) are all funded by people who have some degree of financial aplomb (that’s confidence).
As I speak about these topics people sometimes ask, ‘Are you rich?’ Not by a long shot, but it helps to understand how I define that answer. I am wealthy in that I haven’t spent everything I make and have more than I need today; which might be as little as having lunch money for tomorrow. Being ‘rich’ can be interpreted in many ways, but my definition of being financially rich is ‘having enough capital or interest income that I don’t need to spend any more time working.’ By those definitions, I’m wealthy, but not yet rich. It’s nice of you to worry about me so, but I am very much still working toward my goals.
While I agree that some financially successful people have abused the present system, twisted and amended by corrupt corporations and political forces, I don’t think simply taking wealth from the wealthy is an answer to a country’s financial difficulties. If you do, why would anyone endeavor to work harder to create wealth? What shall we tax then once we’ve taken all the ‘financial potential to create’ away from the creative? Aren’t you reading strategies with which to create more of your own wealth? Should then someone simply take from you what you have worked to create? It would be a travesty; a total injustice and quite literally a crime. Through a learned skill set you created more than what you need today and it belongs to you. Nobody should simply be able to take it from you, under any circumstances.
I hope that the political and economic climate that rages in the time I’m writing this article changes so that once again people who desire to be successful can set about the work involved in doing so without being thwarted, discouraged, and robbed of their created capital at every turn. Let’s not lose hope.
Once you have created enough wealth to cover your needs, and created enough riches to begin to consider how you can put that resource to work to create something useful, you’ll find that the ‘rules’ for managing and investing your money, and even tax laws tend to shift. Many tax laws were written in order to encourage those who have money to put that money to work to create things that build an economy and benefit others. That system has been corrupted, but that was the initial intent. Much of the tax code was written for economic sponsors and creators could net tax savings by widening the tax base through corporate taxes, sales taxes, and employment taxes created through their efforts. Loopholes have been created over the years by the unscrupulous and the tax code should be reviewed and in my personal opinion, drastically simplified, which is being enacted as this article is being edited for its second edition in early 2017. The current administration has already enacted repeal of the Dodd-Frank bill that allowed banks to gamble in the market with depositors funds. Perhaps the winds have shifted? We can only hope. That said, If we encourage those with financial means to grow, their creation will need workers, supplies, and services and can play a part in a thriving economy. The bigger the business, the more employees, the more sales: the larger the tax base.
In your financial journey, wealth is certainly among your first steps. Start small and start putting money aside so that you have your own growing resource of stored ‘work-energy’ (money) that you have earned and can put to use. Once you have something to work with, you’ll be ready to learn about safeguarding it and choosing financial investments that can make it grow, which always involves some risk but doesn’t have to be a gamble. Hopefully, one day in the future, you’ll be looking at where you can put your wealth to work and can play a part in a richer and more successful economic climate.
I wish you much success!
Original article and Images © Copyright 2013, David A. Pandone; All Rights Reserved
Revised for 2nd Edition to davidpandone.com © 2017 David A. Pandone, All Rights Reserved