You’ve probably heard the phrase, “The richer get richer while the poor get poorer” and there’s truth to that. One of the main reasons for this is the education and understanding the rich, or their representatives, have toward money, and more specifically, how to make, and even more important, earn money.
Today’s lesson- there is a difference between making money and earning money.
When I was about twelve I started mowing the lawn of a woman who lived behind us. She paid me $5 to mow and trim her lawn and she’d give me all the lemonade I could drink. And this was actually not even just lemonade, it was freshly squeezed and had a twist of other fruit (usually strawberry or raspberry). She could have paid me with just the lemonade and I would’ve been happy. That would have been a fair trade for me. I didn’t mind mowing her lawn and she didn’t mind making me lemonade. She offered me the lemonade as a bonus and so I sipped it up and then took my money as payment.
Most people have that same mentality. They go to their job and they work hard day after day after day. When they receive their pay they are happy. Sure, most everyone wishes they had more, but as long as they feel like they are making a fair wage and they have enough to pay the bills they are content to keep doing what they are doing. At least to the extent they don’t change their habits.
Two friends, Ben and Jim, both get a job at the local grocery. Ben takes $100 from every check and puts in his savings account. Smart. Jim takes $100 from every check and puts it into a stock account. Smarter. See, Ben earns 4% and Jim earns 12% on their money. Over the course of five years Ben now has $6760 saved up and Jim has $8538. They both saved $6000 in made money but Ben only earned $760 on his money and Jim earned $2538 on that same money.
Now let’s apply this concept to real estate. Ben rents a home $1200/month plus utilities. Jim buys a home worth $160,000 and has a monthly payment of $1200. After five years Ben has earned $0 on his rented home while Jim has written off an extra $10,000/year on his taxes by owning and now his home is worth $200,000 so he’s also earned an extra $40,000 owning his home.
People who are wealthy earn money and as their money grows they earn even more on that money and they begin to brag about how the rich get richer. Those who only make money continue to make enough to get by and then begin to complain about the rich keep getting richer.
In five years Ben and Jim both made the same amount of money, but now Ben has earned $760 and Jim has earned $42,538 on his money. Is this fair? Is this because of the system or their environment? No, this is because one person learned how the system works and benefited from it and the other did not.
I’ll bet Ben is the one complaining.