So, you want to know how the wealthy stay wealthy eh? I’m going to bet you recently read an article that told you one of the habits of millionaires is to wake up at 5am. And you’re probably thinking maybe, just maybe, if you start waking up at 5am too you’ll become wealthy.
Sorry friend but that is some click-bait bullllllsh*t.
The wealthy aren’t wealthy because they’re smarter or hustle harder. Nor are they wealthy because they meditate three times a day or wake up at the crack of dawn. There’s way more to it than that.
The wealthy stay wealthy because they learn how to play the game of wealth. You can learn how to play the same game, but it’s going to require a lot more effort on your part.
Are you game?
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The Wealthy are Given Access to Wealth
Two dudes walk into a bank. One has a balance of $50,000 in his savings account while the other has $10. Guess which one an investment account manager approaches first?
Not the guy with $10.
Money is a business. Whether it’s a bank or credit card company everyone is out to profit. Marketing wealth management services to someone with no savings let alone no assets is a poor use of marketing dollars.
This is one reason the wealthy are wealthy and you are not. It has nothing to do with your aspirations to be wealthy and everything to do with how many commas are in your bank account.
The wealthy are given access to financial management services that you didn’t even know existed and wealth-building products like lines of credit instead of loans. The wealthy stay wealthy because it’s good business for financial institutions to keep them wealthy. You stay poor because it’s good business for you to be poor.
The Wealthy Study Tax Strategies
While you and I dilly dally watching Squid Game on Netflix the wealthy are educating themselves on complex tax strategies.
You may have heard about this but recently Elon Musk polled Twitter to ask his followers whether or not he should sell some of his Tesla stock. Unbeknownst to most people who cast a vote, Mr. Musk was facing a pretty hefty tax bill if he didn’t sell. It had everything to do with avoiding Uncle Sam and absolutely nothing to do with the Twitter plebiscite.
The wealthy leverage perfectly legal tax loopholes, like selling stock to avoid paying taxes, to protect their money. How can they do this? The wealthy are the ones writing the tax code.
They use strategies like opening a special IRA with $2,000 and putting a bunch of pre-IPO PayPal stock in it. After two decades that $2,000 cash investment and few stocks magically turns into $5 billion, completely sheltered from taxes. I don’t know about you but no one ever told me you could shelter pre-IPO stocks in an IRA but I digress.
Think of it like this: the wealthy are playing Monopoly while you and I are playing Candyland. We’re playing two very different games. In order to play Monopoly you have to first learn the rules of Monopoly. You can’t buy Boardwalk while casually strolling through the Gumdrop Forest. Same with wealth. You have to learn the rules of the wealthy to play the game of wealth.
As their wealth exponentially increases, the wealthy do things like hire specialized accountants or lobby Congress to protect their wealth. They write and rewrite the rules to suit their best interests. This is how they stay wealthy.
Come on, do you think all the Silicon Valley tech bros made their fortunes playing by our rules, patiently investing in their 401Ks and trading stocks on e*trade? Helllllllll no.
The Wealthy Don’t Earn an Income
This leads me to the crown jewel of how the wealthy stay wealthy: they avoid earning an income altogether. Mark Zuckerberg famously took a $1 salary in 2013. This wasn’t a mistake my friends.
The wealthy follow what’s called the Buy, Borrow, Die Strategy. In a nutshell, they buy assets that appreciate in value and generate revenue. They use those assets as collateral to open up lines of credit with a bank. A line of credit — which is a form of debt — allows them to afford things like daycare and their mortgage. The line of credit is kept open for their entire life until they die. Any debt that remains is paid with their assets and the rest is passed on to their heirs through yet another loophole that allows those heirs to retain the appreciated assets without incurring any tax penalties.
Our tax code is written based on EARNED INCOME, not debt. When you use debt to pay your bills rather than focusing on earning an income you aren’t taxed. You can then use the money you save by not paying taxes and reinvest it in your asset portfolio. Rinse, wash, and repeat.
Most of the wealth held by the wealthy is unrealized meaning it only exists on paper. Mark Zuckerberg isn’t taxed on his Facebook/Meta/Whatever stock until he sells it. In the meantime that stock does have value and he can essentially take it to a bank and bet it against the house’s money to finance his life.
The wealthy stay wealthy because they don’t go off to get a job and earn a wage. They’ve figured out it’s better to stop earning money altogether.
No offense, but this is one reason why I really hate the FI/RE movement. There are a bunch of armchair finance gurus running blogs telling you how to calculate how much money you need to save and invest until you are “financially independent.” I hate to be the bearer of bad news but trying to become wealthy by investing post-tax earned income dollars is like running a marathon through molasses.
Seriously, this is how the system was designed.
The secret to becoming wealthy and staying wealthy is unlearning everything you thought you knew about money. Whether you’re a plumber making $20K a year or a cardiac surgeon making $450K you’re both still trading your time to earn an income. You’re both using that income to pay for your respective lifestyles. And at the end of the day you’re both still broke. If you want to become wealthy you have to learn how to swap your income for assets.
The Key to Becoming Wealthy
Everything you thought you knew about wealth is learned from a system designed to keep you poor. Your bank is a business, the tax code was written to keep you paying up, and relying on an earned income is the most surefire way to not become wealthy.
It’s true what I said at the beginning: waking up at 5am isn’t going to magically make you wealthy. Well friend, there is a slight caveat to that.
Time is your biggest asset. If you waste it all on Netflix and Facebook you will be just as poor tomorrow as you are today. The key to becoming wealthy is to use your time wisely. Want to guess how the wealthy spend their time? They spend their time reading.
Wake up at 5am to read books about money or investing (these are a few of my personal recommendations if you need a place to start). Protect your lunch break at work and instead of going out with the guys pack peanut butter and jelly and keep reading in the lunchroom. If you live in a city, start taking public transit so you give yourself time to read on your commute. Get rid of the internet so when you come home you won’t be tempted by distractions. (Seriously, I’m currently writing this from my internetless apartment, it works).
You know how Warren Buffet built his wealth? He read balance sheets for fun as a kid. Today he still spends on average five hours per day reading.
Zuck started an online book club back in 2015.
Even now Bill Gates has regular “think weeks” where he goes off somewhere and reads.
All the ultra-wealthy people who built their own fortunes (sorry Walton clan, not you) share one common trait: they spend their time learning and reading.
This is the singular habit all the gurus are telling you to do. Wake up early to read. Meditate to organize your thoughts. Journal to take notes.
If you want to become wealthy and stay wealthy like the wealthy, use your time to study just like they do. That’s it. That’s what you have to do.
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