Money begets money, but let’s not have the little green-eyed monster eat us.
It’s an age old question: how do the rich get richer? Here are some reasons that may explain this economic phenomenon:
A Few Basic Reasons For Why The Rich Get Richer
The rich have started successful businesses.
They do it by starting their own business. They have taken the leap and reaped the benefits of taking that entrepreneurial risk. It becomes a vital cycle: start a business, make money, start another business, make even more money.
The rich get tax breaks.
You get tax breaks when you’re rich. This is usually the case because the rich are business people and business people get tax breaks.
The rich are paid higher and higher salaries while regular people don’t.
In this capitalist society, the experts tend to get paid disproportionately more than ordinary folk. We see how the best chefs are glamorized, a stark juxtaposition against short order cooking and burger flipping; the same gaps exist between the major league ball players vs minor league foks; CEOs vs lower-rung management. We all get rewarded by where we sit in the career / talent / contribution hierarchy.
With all the manna from heaven seemingly alighting upon our more successful counterparts, it’s no surprise we cannot help but wish, or even covet what others have achieved. But what may be surprising is how envy can also extend itself into the ranks of the wealthy. Get a load of this New York Times article entitled How The Rich Envy The Super-rich. I found this to be unfortunate: envy is something you could harbor no matter where you are in the economic scale, which is something often caricatured by soap opera plots like Dynasty for instance.
But irrational as it may seem, there are some reasons that can explain why rich people are envious of each other:
Why The Rich Are So Envious
They are inherently competitive, type A, OCD (or obsessive-compulsive) types.
They’re proud of their ulcers but that won’t stop them from hyper-focusing on knocking off the next guy on the Forbes list. You see, they’re all neighbors who live in the same cul-de-sac, and the Joneses are them. From a former Paypal executive (courtesy of that New York Times article):
“It’s kind of embarrassing,” said Mr. Hoffman, 39, whose start-up, a business-oriented social-networking site called LinkedIn, is almost four years old. “You started a year or two earlier, and they start after you and then this thing zips right past you and gets the golden results.”
Envy is all about comparison.
Before you criticize these rich guys for feeling this base human emotion, just ask yourself how much it makes sense for a beautiful actress to feel ugly while surrounded by gorgeous models. Same thing?
Reference points only make matters worse, Mr. de Botton said. He pointed to research that has been done on attractive women who feel ugly when surrounded by images of more beautiful women. “Very often the problem isn’t so much what an individual happens to look like, but the extraordinary comparisons being made,” he said.
These rich people just want more respect.
They all live, work and play in the same intense fishbowl, so they’re all jockeying to be the alpha guy or gal.
“It can seem like the only way to be respectable is to achieve as much as the founders of YouTube or Google,” said Alain de Botton, author of “Status Anxiety” (Random House, 2004).
Wealth creates pressure.
To those much is given, much is expected, as the saying goes. So it’s hard for these people to sit on their previous laurels without something to prove yet all over again. These people, in particular, don’t want to be labeled “has-beens”.
With rewards of that scale on the horizon, the pressure to make a fortune can be enormous, and people have different ways of coping with it. Some find inspiration in others’ success, while some spend tremendous amounts of psychic energy worrying about how rich their friends are.
So you know what else? I’ve realized that it’s this very envy that causes the rich to get richer. It’s what makes them get up every morning to keep innovating, creating and producing, even if they no longer have to.
Yet one would-be entrepreneur’s inspiration is another’s sense of pressure. “Cynics would say you need this kind of pressure or people won’t achieve, that you only produce these great results if there’s this kind of tension in the air.”
How To Channel Envy Into A Positive
Someone out there has come clean about being envious about a former college roommate’s current success. Lazy Man has confessed about some deep thoughts and honest feelings he’s had about an old friend who is now a successful VP at a financial institution whom he rediscovered via Linked In, a networking site ironically created by that very same envious former PayPal executive I cited earlier. Don’t worry about feeling this way though, because this is a very common scenario that occurs very often… especially here in the Valley. If I got jealous over every person I’ve known and met throughout my career who are now multi-zillionaires, well I’d be a bitter wreck by now.
This negative thing can always be turned into a positive. Although there are articles out there that may advocate that you avoid the affluent Joneses because they can be toxic to your wallet, I have some different views. You can also certainly use the power of distraction and some will power to make the green-eyed monster quit eating you from the inside out, but I’d rather suggest this:
Get inspired.
The stories of the rich and wealthy can just be the ticket to get you going and motivated. Sure, it’s easy to fall into the temptation of feeling like “life isn’t fair” and asking why you’re not getting what you deserve, but the way to success is to move in a different direction. Turn the gap between you and the other guy into a goal and soon you’ll find yourself further along in your plans than you first thought. Find inspiration in others’ stories, not discouragement.
Capitalize on established connections with successful people.
Looking at the bright side, the LinkedIn application itself may just be able to serve its purpose. Networking is one huge way to get further ahead with your endeavors. Around here, it’s the lifeblood of business startups, career advancement, deal-making. Just ask those You Tube fellas, whose billion dollar brainchild is actually the product of incredibly successful networking relationships. Rekindle old relationships and hitch yourself to their stars. Who knows where their success and connections can take you!
Still, I must admit, a few pangs of envy hit me now and again as well. But they don’t last too long thank goodness.
Other posts around the web:
Standing Up To The Green-Eyed Monster
Who Are The Joneses and Why Are We Keeping Up With Them?
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You are right, it never ends. Just today I saw an old start-up that I used to work at featured in the last issue of Business 2.0 magazine. At least I still own some stock there - not enough to get rich, but possibly enough for a down payment on a home (not in Silicon Valley) someday.
Amen! Power of Association is always good. They also have the energy to move forward. And they don’t sit around and blame others for their mistakes.
It is truly a burning issue.
‘Get inspired’ is all well and good. And it’s a nice idea. But the bottom line is lots of people work very hard at things they’re passionate about and don’t become rich and/or successful.
It’s not a personal failing on their part. The fact is, we live in a winner-take-all society. I strongly believe that is why the rich get richer and the bottom 80% of Americans got poorer in real terms since the 1980s.
I wish I remember who said this, but I heard a movie star (I think it was Brad Pitt) respond very well to a question from a reporter when asked ‘you have millions and millions - when is it enough’?
The answer: ‘when I have just a little bit more’.
Don’t forget that our government is made up of rich people who favor the rich in the tax code - that’s why we have taxes on earnings that are significantly higher than taxes on capital gains. Not saying that’s a bad thing, but it clearly favors the wealthy.
I hope I’m wrong but I think wealth inequality is going to be a real source of strain in this country in the next decade or two.
Here’s another reason:
If you get the same return on your investments, but you start out with more money, you earn more. Money begets more money.
Also, the rich get more of their income from investments, rather than from work. Capital is taxed at a lower rate than wages (not necessarily a bad thing), and it is scalable to make money from capital: you can only work one job, but your money can continue to work around the clock.
Thanks for the link!
I agreed with this entire article except the point about taxes. The wealthier you are, the more taxes you pay. The wealthiest portion of America pays a very large amount of our tax base. However, they also pay more attention to ways to avoid this, which is why people might think they pay less taxes. The same loop holes open to the wealthy are also open to everyone else, they just choose not to use them.
For example, I frequently see friends with little money throw away their old PC’s. Why? Those PC’s could be donated for close to their full value in a tax deduction. Old clothes? Donate them. Take advantage of 401k’s. Hold investments longer.
I recently started my own blog. It’s nothing fancy, just a little website about fitness and health, but now I can write off expenses like an ISP and a computer. I didn’t start the blog as a tax deduction, I started it because I enjoyed writing about the topic, but I am aware of the tax ramifications and I choose to take advantage of them.
There are numerous ways to minimize taxes if you just look for them.
Gal
I agree with Gal on the taxes. I just reviewed proposed “Flat Taxes” on my blog yesterday. From IRS data, I found that the top 2% of income earners made 21% of the national income and paid 35% of the national taxes. It was an average tax rate of 25%… mine is only like 13%.
Lazy: A lot of my friends have the same thoughts as you. I would too but I have a lot of family here…
Mats: great link, I appreciate it!
KMC, Moneymonk: I agree that it’s all within our power to determine who gets wealthy. But yes, luck plays a big role in this as well.
Brip Blap:
You have some points about the wealth inequality situation. Compared to other parts of the world, we’re not so “unequal” just yet. But the gap is widening and it has not been more obvious than in some states like California where a lot of new immigrants settle down and a lucky several become instant multi-millionaires in a heartbeat. I’m not sure what the consequences of such widening gaps are over here — who knows, a new administration may help turn things around.
Shadox, absolutely. There’s a tipping point somewhere though — when does it become “easier” to make that money? When you are able to make that money work for you and give you a hand.
60 in 3: I agree that there are tax breaks everywhere. But, I’ve seen how taxes ravaged my take home pay being a relatively high-income earner. There was a time I hit that ~50% marginal tax bracket and was never more frustrated. But I suppose that was my problem — I should’ve found ways to capitalize on the tax breaks. The point here is that most people don’t. And the rich do, who have a lot of resources behind them to help them figure out the loopholes. Plus, they have huge businesses so those tax advantages can be huge as well.
Curtis: I support flat taxes! Give me that, anytime!
I wonder if it would be a different story if the rich were just getting richer on a steady basis because the poor are getting poorer in a steady basis through overspending, rising interest rates, mounting credit card debt.
Is it really in proportion?
The rich also use the power of negotiation by never paying the retail price, and they buy mostly appreciating assets…not to mention..using leverage and OPM (other people’s money) to make a buck….until the rest of us figure that out…we will continue to be either poor or grudgingly middle class!
#5. It was J. Paul Getty.