Many people get disgruntled about this & demand a redress of the balance through higher taxation, setting up unions, socialism, philanthropy, crucifixion, blah blah blah. 

But people are paid what they are worth, according to the amount they produce and the value they give. No-one is sustainably paid any more, or any less, than they are worth. You are paid what you are worth. Your pay slip doesn’t lie.

Financial success isn’t defined by how quickly they accumulate and spend money, but about respecting the principles and practices that protect it and allow it to compound and grow for the long term.

There are simple economic laws that are the reason that the rich tend to get richer. And guess what, the wealthy know & leverage these, and the poor don’t and are leveraged by them. 

You MUST preserve capital at all costs

Most people get their hands on capital (usually their salary, dividends or drawings from their business or from selling things) and then spend it as quickly as possible. You certainly don’t need money in order to make money but it’s a FACT that money attracts more money to it. Consider investments that earn interest; if you’ve no money to invest in the first place, then you’ve no means of attracting the interest!

People also fail to preserve their capital through impatience to do deals and bring forward future gains. Warren Buffett typically does only 3 deals per year. Even if he did them on different days, that’s 362 days in a typical year when he’s researching, reading, strategizing and planning, rather than actively doing deals.

I’ve been known to be impatient, particularly when my business partner Mark and I are investigating and evaluating business deals. While I’m naturally impatient to capitalise on what I perceive to be ideal conditions, Mark is usually more cautious and will ensure we go carefully.  Things often improve, terms and conditions become better, prices can go down and we usually end up getting a better deal as a result of this caution.

Don’t be impatient to get into an investment or in a rush to get your money out again. Instead, use the time wisely to investigate, educate yourself and research the opportunities. ALWAYS preserve your capital.

Capital produces Income when invested in assets rather than liabilities

Billionaires avoid buying liabilities that depreciate in value and lose money. They prefer to buy assets with their capital that will generate income by appreciating in value (such as property that gains value) or generate revenue (property when it’s rented out)

When you preserve your capital by investing in an asset, it will likely appreciate in value over the life of the investment. In the case of something like a buy-to-let home, it can also pay you a regular income too. If you need to buy or lease a car (for instance) invest your capital in an asset like a buy-to-let house and use the income from that to pay for the car. While the car will inevitably lose value over time, your capital is protected in the property and can be recovered in the future. The house may have gone up in value too, generating even more capital in return!

Again, discipline and patience are required. In this example, finding and renovating the house, and renting it out could take time before it starts generating income. The end position will still be that you can fund your car, but while having also accumulated an asset and protected your capital in the process.

Don’t be unrealistic (or greedy!) about the return on cash

You can receive an infinite return on some investments. If for example you invest in a property, it may go up in value and you can then take your original capital out of it while retaining the investment property; a new asset. You can also get an infinite return on time invested in a project, if you use it to build a business or create evergreen assets like books that will generate income forever.

When it comes to capital invested in cash savings though, many get greedy or lose sight of what is realistic. A 5% return is typical and acceptable from ISAs and other managed funds. An expectation of 20%+ based on what bridging-lenders receive is ridiculous. They take risks in such lending and this isn’t how billionaires see returns on cash which are steady and relatively low (but still useful).

The habits of billionaires

You have the choice to practice these principles in your personal and business finances, just as billionaires like Gates and Buffett have. Wealth is not just about building income; money management is equally critical. Billionaires understand that you need to have money before you can manage money, but you will also struggle to increase your wealth until you can manage the money you have.

In repeatedly practicing these tactics, they ensure that their income and capital grows and their long-term wealth grows too. Start building some of these practices into your life and I’m sure you’ll see the same effects in your finances!

Stop consuming needlessly 

To be poor is to consume; wasting or spending all money (and time) consuming depreciables. The wealthy produce for the poor to consume, and so redistribute wealth towards them from the poor. Vast wealth comes from vast production (nationally, globally, high volume), poverty comes from a negative differential between production and consumption.

The wealthy create enterprise and economy through jobs, economy, increased flow and velocity of money, contributions to taxes, hope, service to vast numbers of people, and the poor are dependent on these to survive. Virtually all global wealth is now private, so all state benefits that poor consumers feed off are financed by producers.

Because poverty consumes more than it produces, this has to be economically balanced by large scale production, and because of the 80/20 principle, the 20% will produce for the 80% to consume. And so this will compound in the direction it is already going; the rich getting richer and the poor getting poorer.

To be poor is to consume; wasting or spending all money (and time) consuming depreciables. The wealthy produce for the poor to consume, and so redistribute wealth towards them from the poor. Vast wealth comes from vast production (nationally, globally, high volume), poverty comes from a negative differential between production and consumption.

The wealthy create enterprise and economy through jobs, economy, increased flow and velocity of money, contributions to taxes, hope, service to vast numbers of people, and the poor are dependent on these to survive. Virtually all global wealth is now private, so all state benefits that poor consumers feed off are financed by producers.

Because poverty consumes more than it produces, this has to be economically balanced by large scale production, and because of the 80/20 principle, the 20% will produce for the 80% to consume. And so this will compound in the direction it is already going; the rich getting richer and the poor getting poorer.

Newton’s first law of physics is: “An object at rest stays at rest and an object in motion stays in motion, with the same speed and in the same direction unless acted upon by an unbalanced force.’

Of course you’re likely looking for a deeper argument than the rich get richer than ‘because they are already rich’, & the poor get poorer because ‘they are already poor’, but let’s not dismiss something for its simplicity. 

If you are moving in the direction of wealth and money, even if you haven’t attained the levels you desire yet, keep going. Keep on keeping on. You will get there.

Rob Moore