At a time when we keep reading that Australian’s are the richest people in the world, it seems that the rich are getting richer.
Now one of the reasons the rich keep getting richer is because they don’t only depend upon the incomes but they own assets like real estate.
Another is that they have learned to save compared to the average Australian who has difficulty saving.
Now would be fair to say that it is easier for the rich to save because they have more money, but it’s not as simple as that.
The maths of wealth is simple.
There is income (the money you make), savings (the money you don’t spend), and returns (the growth in value of the money you save).
The problem facing the bottom 90 percent—not the rich, but the “rest”—isn’t merely that they’re making less money than they used to, but also that they are saving virtually, none of it.
While I don’t have the statistics for Australia, an article in The Atlantic explains the situation in America –
Wealth inequality has spiraled out of control for two reasons—middle-class Americans aren’t making enough money and they’re saving virtually none of it.
There are some interesting lessons in this article, so please read on:
In the last 30 years, the savings rate of “the rest” has fallen from 6 percent to negative-4 percent. It now hovers a whisker away from zero.
The rich are different.
And the really rich really save, even more than they used to, according to a new paper from economists Gabriel Zucman and Emmanuel Saez.
Saving Money: Rich People Do It
As you can see, thanks to a century of making more, saving more, and passing along the inheritance, the picture of wealth inequality in America today makes old-fashioned income inequality look like a socialist’s dreamscape.
Wealth in the USA in 2012
It didn’t have to be this way.
Even with stagnating incomes, the rest could have done a better job building and keeping wealth.
If the bottom 90 percent had continued to save 3 percent of its income over the 1986-2012 period, its share of US wealth would be a third higher than it is today.
It must be said that, over this same period, interest rates fell dramatically, depressing the returns of ordinary savings accounts.
The bottom line: being wealthy starts with not spending money.
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.