Why the Rich get Richer and the Poor Poorer

How come people who make more money seem to get rich so MUCH FASTER and the poor just seem to stay poor or worse?

An excerpt from http://en.wikipedia.org/wiki/Wealth_condensation: "Cost of living is typically the same for everyone. In a free market economy, factors contributing to the cost of living will adjust so that poorest members of the society are forced to spend all their income on bare necessities (food, housing, medicine), whereas richer members will have enough excess income that they can save and invest. Thus, in a free-market capitalist economy, both savings and the investment income ...are disproportionally accumulated in hands of wealthiest individuals."

Looking at real life: If you compare three people's income (100k, 60k, 30k) you'll find that their expenses are not proportionately different. If you earn 100k in income, you might spend 60k in expenses, if you earn 60k, you might spend 50k in expenses, and at 30k, you might spend 29k. Why this is so important is that the first person saves 40k a year, the second person 10k, and the third 1k. This is enormously different. At 100k vs 60k, one is earning just 1.66 times more income, but they're have 4 times more income left over at the end of a year - they're accumulating wealth at 4 times, not 1.66 times. And compare 60k to 30k and the difference is even more staggering: earning 2x more money but having 30x more left over at the end of a year. That is one of the single greatest arguements for the importance of increasing ones income: if you don't, your expenses will eat all your income. Of course, no matter what income you earn, you can still manage to spend it all. But using this example, a 100k earner saves more in 5 years than a 60k earner in 20 years. Add to that fact opportunities to invest and compounded interest in real estate, stocks, or a business.

So the answer: the disparity isn't income. The disparity is money left over after life expenses.

How do you accumulate wealth twice as fast?
While saving money is highly useful, it's hard to trim 10k off your expenses.

The next step: If you're that 60k/yr earner, and if you got a part-time job that made you another $800 a month over the next year (9.6k), while that's only a small increase in income, that's the equivalent accumulating an entire extra year worth of savings (9.6k in addition to the 10k left over at the end of a year).

In parting: If you feel yourself putting up resistence to the idea, do a cost benefit analysis. Is making that extra 9.6k of money harder than working nearly a full year of your life? And, who said you had to work harder? People who accumulate money have the same number of hours in the day as everyone else. In fact, it's quite likely they work less. They are more creative and effective and frequently choose ways to make money that don't correlate to how much time they must spend.

Jared's 2009 Most Favorite Buys

1. Get a smart phone (My fav - iPhone 3GS, $99). Try to get a person to give up their smartphone. It's like asking someone to go back to riding the bus to get around. The iPhone has full internet, helpful apps, email, texting, 3MP pictures... you can listen to music, watch movies, shoot live streaming video. Customer satisfaction for iPhone's is the highest of any smart phone. It's impressive even if it's hampered by ATT.

2. Get a Kindle, $259. The best advertisements are kindle owners - ask them about it and they turn into a long, animated advertisement. I understand people who say they're "old school." But if using the product for 5 minutes converted my very old school father, it'll knock you over, too. It saves money, too -- books are MUCH cheaper and can be bought virutally anywhere (lying in bed, reading on the water, at a restaurant, etc). You can always return it if not convinced.

3. Get a personal cook, $12-15. If you have an undying love for cooking, skip this one. Otherwise, consider how much time you spend going to the groccery store, buying ingredients, cooking, and then cleaning. And spoilage. And eating out. At the end of a day, would you rather do all that, or spend time doing anything else? Estimated cost of homemade meals delivered to home, $12-15 that feeds 2-3. Even having meals 2-3 days a week can make a big difference in stress levels and free time. If you're interested, IM me for suggestions on hiring (I have this down pat).

4. Weigh yourself daily, $0. Write it down on a chart taped to the wall above your scale. This won't by itself make you skinny, but being consistently conscious of your weight is much easier than waking up 25 lbs fatter 2 years later. This is freedom from buying bigger clothes, feeling crappy, and as you age, a ton of health related problems. I'm not saying go for skinny, but I am saying avoiding fat would be cool.

5. Delegate a job, $10. Make it one you really hate. A repetitive one. Cleaning, laundry, shopping, basic errands, picking up poop, whatever? What you really want can generally be delegated to someone competent for $9-$12/hr. I like Craigslist for job postings.

6. Get voicemail transcription, $10-30. If you use your cell phone for your work phone, this is a must! Of the last 900 voicemails I've gotten, I avoided listening to all but 60 of them. Highly accurate computer technology converts your voice messages to emails you can read (the voice message is attached). I've tested all the services and like phonetag.com the best.

7. Get MyWi. $10. It's a hacked iphone app that allows you to make your iPhone a wireless spot. Be anywhere - car, boat, library - turn on this app, and your laptop can connect to the iphone (wirelessly) and use the internet just like at home. Super handy! See iphone.jaredfielding.com for more apps I like.

8. Viper Remote Car Starter (w/iPhone app), $500 installed: This isn't cheap, but if you live in places where it gets to 25 below freezing, being able to warm your car from inside your work building, or inside the mall or movie theater makes winter (and super hot summers) more more enjoyable.