The Rich Get Richer and the Poor Get Poorer. Why?

The rich get richer and the poor get poorer every single day. The biggest reason behind the difference between the rich and the poor is a lack of financial literacy and education. While there are many other reasons, that is the biggest contributor to income and wealth inequality.

It shouldn’t be this way. The wealthy shouldn’t continue to be wealthy and the poor shouldn’t continue to be poor. There should be ample opportunities for upward mobility across the world, however, there isn’t. There are systemic reasons why it is such a way. For example, tax rates.

Capital is taxed at a low tax rate of 20%, maximum, while labor is taxed at almost 40%, maximum. Money that produces nothing by itself is taxed less than labor who is responsible for producing physical goods. That doesn’t sound right to me, but it is the system that exists today.

I’ve been there before. After college, I lived on approximately $20,000 per year after tax, 401(k), HSA, and insurance contributions. That was closest to the poverty line I’ve ever been on. I know what it feels like to struggle and live paycheck to paycheck. However, I was maxing out my retirement accounts.

Therefore, even though I was cash poor, I was still building wealth. Many of my friends absolutely could have afforded to maximize their retirement contributions as well. However, none of them did. Even though they had high incomes, they didn’t build enough wealth that’s commensurate with their income levels.

Don’t follow in their footsteps. Don’t let the rich get richer and the poor get poorer. Everyone has the ample opportunity to save and invest their money in order to build wealth. Unfortunately, only a few actually take the steps to get there.

Why the Rich Get Richer and the Poor Get Poorer

One reason why the rich get richer and the poor get poorer is because you’re not SMACKING that social share button and posting to your favorite social media! If you could give that social share button a good slap until you post to your favorite social media for your friends to be smarter about money, that would be much appreciated.

The more people understand how true that the rich get richer and the poor get poorer, the better decisions we can make to close that gap. Or at the very least be a part of the rich side of the equation. I’ve been rich and I’ve been poor and I can honestly say that being rich is better.

So with that said, let’s go over into concrete reasons why the spread between the poor and the rich widen!

1) The Rich Get Richer Because They Contribute Towards Retirement

Fewer and fewer poor people are contributing towards their retirement accounts. It could be because they don’t have any money leftover after paying necessary expenses. It could be because they are thrifty with their spending. For whatever the reason may be, the rich consistently contribute to their retirement accounts while the poor do not.

One of my friends had the option to contribute to his 401(k) account. It was shocking to find out that he doesn’t even contribute until company match! Please do not be like my friend there. Since the beginning, I maxed out my 401(k) every full year since I started working. I max out my HSA account as well.

Don’t let the rich get richer and the poor get poorer by not doing a simple thing such as contributing to retirement accounts. The best thing about retirement accounts is that it is automatic. All you have to do is set the percentage you want to save for the year. Everything else is done for you.

This is the opportunity of the lifetime to squander or build your future.

2) It is Expensive to Be Poor

One of the biggest differences between poor vs the wealthy is that it is more expensive to be poor than to be rich. That’s why the rich get richer and the poor get poorer. Some poor people are just barely scraping by with no leftover money to contribute towards their retirement or investment accounts.

Because the poor cannot afford to buy items in bulk, they pay more per item than the rich. So forth and so forth. Even more of a stark difference is that the poor have to go to where the opportunities are. The opportunities come to the rich.

Businesses and people generally and naturally flock to the rich because they’re the ones with money and power. Did you know that Tim Cook personally spent hours being Warren Buffett’s customer service rep? No one else in the world got that opportunity but Warren Buffett.

When you are poor, not only is it more expensive, the opportunities don’t come to you. You have to go to the opportunities. The difference between the rich and the poor can only widen.

3) Rich Get Richer Through Tax Rates

The long term capital gains taxes are 20%. What?! The maximum Federal income tax rates as of 2021 are 37%. The ones who enjoy the lower tax rate of 20% are the rich who can afford to invest leftover funds in the stock market. With such a large difference in the tax rates, it’s no wonder that the rich get richer and the poor get poorer.

At this rates, it’s impossible for the spread to not widen. Personally, I have no idea why capital that produces no physical goods or services is taxed at a lower rate than labor who produces actual goods and services. I believe labor is much more valuable than capital. However, it is what it is and there’s little chance that this will change.

Therefore, to combat the effects of this, make sure to invest in the stock market not only for passive income but to pay lower tax rates. When you can’t change something, it’s better to join the better side. Although the benefits might be small at first because you’re working from a low capital base, it’ll still be worth it.

4) Poor get Poorer due to Poor Financial Literacy

Poor financial literacy is causing the rich to get richer and the poor to get poorer. For example, it is not complicated at all to be a millionaire. The vast majority of Americans can be a millionaire with a regular 9-5 job without any problems or complications.

Approximately $5,010 per year invested at a 7% interest rate for 41 years is enough for someone to become a millionaire. That’s not a lot of money. Even if you are living in poverty, there are $15/hr jobs you can pick up and work an extra 500 hours per year. If that isn’t possible, there are numerous side income generating opportunities.

Is it harder? Absolutely. However, is it possible? Absolutely. The best part is that only 8% of Americans are millionaires. Even though more than 8% of Americans can afford to put away $5k per year, only 8% are millionaires. As a personal finance Filled With Money reader, that’s not going to be you!

Don’t let something like financial literacy be something that holds you back. It’s completely in your control to be financially literate.

5) The Poor Spend Like The Rich and the Rich Spend Like The Poor

The goal is to be rich, not to look rich. In general, the poor spend like they have a need to prove themselves to the world. So they overcompensate for what they don’t have and try to look as rich as possible. In general, the rich don’t need to prove themselves to anybody. They wear tattered clothing because they have no need to.

Mark Zuckerberg wears the same shirt almost every single day. Yes, people make fun of it, but he doesn’t care. He doesn’t need to prove that he’s rich to the world. If people don’t believe he’s rich, he doesn’t care. Why? He already knows that he is. There’s no need to let other people know it.

It doesn’t matter if all 7 billion people on Earth doesn’t think he’s rich. What matters is that he knows he is. That’s the mindset that the poor should have but don’t. The rich get richer and the poor get poorer. The rich protects their dollars and makes sure to not spend on anything that isn’t necessary.

6) The Poor are in Low Skilled Jobs

If the coronavirus taught us anything, it’s that low skilled jobs are very expendable and/or have to withstand dangerous working conditions. White collared employees just worked from home with their computer and an internet connection. However, front line blue collared workers do not have such a luxury.

Someone has to stand in the cashier line to be face to face with customers who enjoy shopping in person. As a result, they expose themselves to contracting the coronavirus. Work from home employees did not need to subject themselves to the health risks of the coronavirus since they just worked from home.

The poor has to work in unsafe conditions and therefore has to spend more money to remain healthy. Work from home employees had to pay less money to work. There’s no need to go to the dry cleaners and/or actually physically drive to the office. They enjoyed higher pay with less costs than blue collared employees.

It’s no wonder the rich get richer and the poor get poorer.

7) Higher Crime Rates Among the Poor

It’s well documented that poverty is the mother of all crime. The crime rates within a rich community is lower than versus a poor community. Crime doesn’t just set you back financially, it sets you back psychologically and time wise. Not only do you have to recover the money that you lost, you have to recover from the trauma as well.

Therefore, with such a reality, it’s no wonder that the rich get richer and the poor get poorer. The rich does not have to worry about crime and can afford to focus on other things besides their safety, such as making more money. A luxury that the poor do not have.

I remember I lived in a crime heavy neighborhood during an internship. My heart beat every time that I left the house, afraid that I will get shot one fateful day. Every night, I switched my nice work clothes with normal street clothes to avoid sticking out like a sore thumb.

Ever since that experience and knowing that I no longer have to do something like that, I now know that I am living in privilege. It opened my eyes.

The Rich Get Richer and the Poor Get Poor. It Shouldn’t be This Way

It shouldn’t be that the rich get richer and the poor get poorer. Upward mobility should be accessible to everyone. However, upward mobility is impossible for certain groups of people. Part of it is because the system is stacked against you in countless ways.

For example, the tax rates for labor vs. capital should not be such a way. Warren Buffett specifically commented how much less he pays in taxes versus his secretary. Additionally, good financial literacy should be available and accessible by everyone. However, it isn’t.

The game is rigged so that the rich get richer and the poor get poorer with zero chances of that changing. It’s been such a way since people created wealth. It will never ever change. Not in our lives, not in our grandchildren’s lives, or in anyone’s lives. Therefore, when you can change the system, join the system.

Yes, it SHOULDN’T be this way. However, instead of focusing on how something should be, focus on how something actually is today. Then figure out how to profit and come out on top of it. Complaining is fine but only if it is productive. In this case, it is not productive.

You will never win the fight in the who should receive upward mobility debate. Therefore, instead of wasting your time, turn your attention to much more productive activities. There are better things to invest your limited resources elsewhere such as working, learning a new skill, or starting side hustles.

Once you achieved everything you wanted from a business perspective is when you can start to focus your attention on other activities such as creating a more equitable society. Take care of your and your family needs first.

Make Sure to Get Richer Every Year

Instead of worrying about the rich getting richer and the poor getting poorer, just get rich yourself. After all, it really doesn’t matter if others are doing better than you. What truly matters is if you are doing better than last year. Therefore, save and invest as much as you possibly can.

Practice brutal honesty and ask yourself if you really needed to buy that latte. Or it could be another daily expense that you could actually make yourself. One of my friends lived with his parents for two years now, even after being out of college. That’s easily an extra $25,000 that he saved.

Actually ask yourself if you need to spend those expenses and if there are areas in which you can cut. There’s a good chance that you are not living on an essential expenses budget. If I could live in my parent’s place, I absolutely would. However, I know that’s not a possibility. Therefore, I cut out expenses anywhere else that I can.

Remember that it’s shocking how manageable becoming a millionaire is. Although results aren’t guaranteed, there’s a great chance that an extra $5,010 per year can get you to the millionaire status in 41 years. Why not take the chance that gives a very good chance of it working out?

The S&P 500 never returned a negative result over a 20-year period. Although results aren’t guaranteed, do you really want to bet against a 100% win rate? In the rich getting richer and the poor getting poorer, make sure you’re on the getting richer side of the equation.

Not only does your financial future depend on it, your family depends on it as well.

Why the Rich Get Richer and the Poor Get Poor List:

• The rich contributes towards their retirement
• It is expensive to be poor
• Tax rates
• Poor financial literacy
• The poor spend like the rich and the rich spend like the poor
• The poor are in low skilled jobs
• Higher crime rates among the poor