How the Rich Got Rich
A friend of mine recently posted a link to Inc Magazine's article on How the Rick Got Rich. The author took data from the IRS website for the top 400 Wealthiest tax filers 2009 update. You can find the full detailed breakdown by year from 1992 to 2000 here
The problem I have is not with his conclusion but rather at how he arrives at it. Logical thinking is something that helps us to understand why things work and how to repeat them. So what was his conclusion.
Obvious conclusions: (Source Inc Magazine How the Rich Got Rich)(See link above).
- Working for a salary won't make you rich.
- Neither will making only safe "income" investments.
- Neither will investing only in large companies.
- Owning a business or businesses, whether in part or partnership, could not only build a solid wealth foundation but could someday...
- Generate a huge financial windfall.
Does the evidence he has provide those conclusions? Can one year of data lead you to that conclusion? I would say that it points in the right direction but doesn't provide solid enough evidence.
To better understand how the rich got rich you need more information. If you look at Forbes List of Billionaires you can skim through it and realize that the vast majority of them got their wealth through a business interest. Since the Forbes list is world wide and focuses on net worth not taxable income it is probably a better barometer for us to determine how the rich got rich.
Why is net worth better than taxable income? Taxable income doesn't include things such as stock holdings, non rental real estate, gold, silver, art, etc. Taxable income is skewed towards those that are actually working. For instance someone who was an investor in a company may have their net worth dramatically jump when that stock goes public. Capital gains though will only be paid when the stock is sold. So someone with large holdings of stocks that don't pay dividends may never end up on the list of the 400 wealthiest tax payers.
So can you replicate how the rich got rich?
Is it possible to just look at their tax data and determine how they got there? Probably not but it does leave some interesting foot prints. Warren Buffet is a prime example of this. Many people talk about his wealth like it came from investing. They publish articles on how to invest like Warren Buffet. The problem is he didn't make his money investing. He made his money buying and running companies. Once he generated enough wealth he moved to buying stocks but even now when he does he gets great leverage. Can we invest like Warren and make the same money he did? Not unless we start the same way he did.
How the rich got rich is really a simple question to answer in most cases. They provided a great deal of value to a great many people. Think Bill Gates. Many people will curse Windows software but look at the value he created by having the vision to see a PC in every home. Look at how many people are impacted by it.
Want to follow the path on how the rich got rich?
Then start a business. With the internet it is the easiest thing to do. You can find the basics on starting a business online. Also before you start you want to truly define what is wealth to you? If you are interested in me coaching you through this process leave a comment below or shoot me an email.
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PS. So does understanding the the rich got rich help you get started? Create value for the world and you can follow the same formula how the rich got rich.