What are the reasons for rich getting richer and poor getting poorer? Why the rich continue to make more money and the poor don’t? The difference stems from how they manage their money. To explain it to you first I’ll introduce you to four important terms in finance.
Assets – these are the things that bring you income like gold, mutual funds, own business or education.
Liabilities – these are the things that generate expenditures. For instance: the car because you have to pay for insurance, maintenance, gasoline, etc.
Income – is the money that you earn every month.
Expenditure – is the sum of money which you spend every month.
Tony Robbins explains why Rich Getting Richer and Poor Getting Poorer
According to the business definition assets are the things that you own. Your house can be liability, because its seeding is related to expenditures, and the house can be also an asset if it is intended for rent and generates income. The difference between poor man and the rich one is in what these people are buying. Poor squander money or what’s worse buy liabilities.
This state of affairs means that the poor are increasing spending, but do not have much income. Their income is based solely on their personal work, so if their life situation gets worse, the poor will not be able to work so hard or if they lose a job they await to go bankrupt.
The rich for a significant part of their money buy assets. For increased revenue rich buys even more assets, so it even more increases their income.
The rich do not buy luxuries with their money, that they can’t afford. Rich man will buy a car only when income from the assets will enable him to fully pay for the maintenance of the car. And with his income the rich will still have money to buy more assets.
This state of affairs makes a rich man richer, and income does not depend directly on his work, so his assets will bring income even after his death. Once earned money can work for several generations. These are the main reasons for rich getting richer and poor getting poorer. That’s exactly how formula of wealth looks like.