What Truly Separates The Rich From The Poor

What Truly Separates The Rich From The Poor

The divide in the world between the rich and the poor has become wider in the past twenty years and is only growing. In this article, let’s look at exactly what’s causing such different outcomes in economic fortunes and separating the rich from the poor.

The most significant difference in the mental framework between the rich and the poor is the rich have understood a basic principle: money can be used to generate capital gains and cash flow. Rich people see capital as an asset for management and investment, and the poor see it as something to be earned and spent.

A study by Fidelity Investments found that 88% of all millionaires are self-made. These people built one million dollar net worths from their own investments, careers, and businesses and didn’t inherit it.

Here is the data according to a Bank of America study of 1,000 individuals who held over $3 million in investable assets:

27% of multimillionaires are self-made: Defined as people with a “middle-class or poor upbringing and no inheritance.”
46% have a head start: Almost half the rich surveyed had some inherited wealth or an affluent upbringing.
28% have legacy wealth: People with both an affluent background and inherited money.[1]

People can have five types of financial origin stories:

  • They come from nothing but take advantage of the resources and opportunities they see to build wealth.
  • They come from money and do what they need to maintain their status through education and a career.
  • They are born to millionaire parents and take that head start and advantage to become billionaires.
  • They squander the financial opportunities they are born into through partying, addiction, or laziness.
  • They are born poor and accept that’s their destiny in life.

What separates rich and poor?

  1. The rich have an edge through education.
  2. The wealthy sell value and the poor sell their time.
  3. The rich work for themselves, while the poor work for someone else.
  4. The rich have a growth mindset, while the poor have a fixed mindset.
  5. The rich have multiple income streams, while the poor have only one.
  6. The rich network with other rich people, while the poor don’t have access.

1. The rich have an edge through education

The wealthy think it’s crucial to get educated and be lifelong learners. The rich want to see their children do well in school and attend a good college. They believe the investment is worth it and are willing to pay the tuition to ensure the best formal education.

It’s misleading to believe education isn’t essential because many billionaires are college dropouts. The rich believe it’s important to send their children to the best private schools from the start of their academic careers to build a strong foundation of learning from a young age. The number of top entrepreneurs who went to private school as children are staggeringly high, showing they got the best early education. Most were accepted to elite colleges.

Many so-called self-made billionaires had an elite private school education even before college. The list includes Richard Branson (Virgin), Bill Gates (Microsoft), Mark Zuckerberg (Facebook), Elon Musk (Tesla and SpaceX), Jack Dorsey (Twitter and Square), James Dyson (Dyson), Reed Hastings (Netflix), Reid Hoffman (Paypal and LinkedIn), Tony Hsieh (Zappos), Kevin Plank (Under Armour), Evan Spiegel (Snapchat), Kevin Systrom (Instagram), Jimmy Wales (Wikipedia), and Nicholas Woodman (GoPro) according to the book Unfair Advantage.

Bill Gates and Mark Zuckerberg dropped out of Harvard, not High School. What they both had in common was the academic success that got them into Harvard and the vast computer coding and programming skills they developed at young ages that lead to their success in founding tech companies.

Bill Gates, Warren Buffett, Charlie Munger, and many other wealthy people believe that reading nonfiction books your whole life is also crucial to financial and business success. The education of the rich doesn’t end with college; it is only the beginning.

Sadly many people that are poor don’t finish high school and never read another book after they leave school. Education, learning new skills, mastering technology, and reading separate a lot of the rich from the poor.

2. The wealthy sell value and the poor sell their time

The wealthy tend to sell value, not their time. They use their time to create businesses, products, inventions, intellectual property, cash-flowing assets, and investments. Their time is spent building things to sell to others; they don’t sell their time directly. They leverage their time, knowledge, experience, and energy by creating assets.

People can never be wealthy until they can disconnect how they earn money from their time. Selling time for money can keep you poor if you can’t convert that earned income into investments, businesses, or cash-flowing assets. Your time is a limited resource; without leverage, it’s a fixed commodity that limits earning ability.

The rich leverage their time to create value to sell for wealth building and the poor have a fixed income based on their time and hourly pay.

3. The rich work for themselves, while the poor work for someone else

The rich never lose sight that they work for themselves even when they have a job starting out. They ensure they aren’t taken advantage of by an employer and only accept fair compensation for time and effort. The rich focus more on what they can learn at their jobs and the experience they gain in addition to the paycheck. Most importantly, their goal is to work for themselves by starting their own business, becoming an investor, or becoming self-employed. People have much more energy when they profit from through own ideas and efforts. The rich will risk their capital to work for themselves.

The poor prefer a steady paycheck and having someone else tell them what to do daily. They prefer security over risk and don’t like the uncertainty of not knowing where their next paycheck is coming from.

4. The rich have a growth mindset, while the poor have a fixed mindset

The poor can fall into the trap of the fixed mindset, believing that the current abilities of intelligence and talent are fixed just the way they will always be for a person. It’s the belief that people are born and destined to be at a certain ability level. A fixed mindset accepts their current performance and intelligence as fixed and does not try to improve and grow. They believe people are born with a talent that enables success more than effort. They believe performance is inherently fixed and static.

The rich have a growth mindset that doesn’t believe that abilities and intelligence are limited to their current levels but instead can be developed and improved upon with study, work, and goal setting. A growth mindset looks at the future potential and strives for growth through work, education, exercise, entrepreneurship, and self-improvement.

  • A fixed mindset can stop the poor from ever trying to change their financial situation and life circumstances by creating a belief in a  predestined victim mentality.
  • A fixed mindset avoids challenges as a waste of time, while a growth mindset embraces challenges as a path to growth.
  • A fixed mindset gives up on setting goals and believes the present situation is just the way things are, while a growth mindset has the perseverance to learn more to overcome obstacles to achieve goals.
  • A fixed mindset focuses on the minimum effort needed in a situation, as extra effort is wasted, while a growth mindset puts forth the effort needed to get to the next level of rewards.
  • A fixed mindset sees negative feedback as a personal attack on them or proof of their lack of ability. In contrast, a growth mindset sees feedback as positive and uses it constructively to adjust efforts to learn and grow.
  • A fixed mindset is jealous and threatened by the success of others as they see potential opportunities as finite. In contrast, a growth mindset learns from the success of others and sees potential opportunities as infinite.

People with a fixed mindset see their place in the world as limited and their destiny and place in life as unavoidable. The growth mindset believes in unlimited freedom and opportunity and that only time separates them from their goals when they are willing to do the work necessary to achieve what they want.[2]

5. The rich have multiple income streams, while the poor have only one