Interesting article on wealth

**SWC Bonfire** · 10-13-2005

http://finance.yahoo.com/columnist/a...icher/1095?p=1

Why the Rich Get Richer
by Robert Kiyosaki
Finance Home > Why the Rich Get Richer > Work Hard, Earn Less?

Work Hard, Earn Less?
by Robert KiyosakiUtility Links

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Monday, October 3, 2005
American workers have been getting the short end of the stick since 1943.

That's when the United States Congress, in response to the costs of World War II, passed the Current Tax Payment Act. The act requires employers to withhold taxes from their employees' paychecks, overturning the previous system in which workers were paid first and settled their tab with the government later.

The Current Tax Payment Act is why so many people look at their paychecks and wonder where all their money has gone.

My poor dad -- who also happened to be my real dad -- often said to me, "Go to school, get good grades, so you can find a good, secure job with benefits." My rich dad, on the other hand, had a different point of view.

Instead of advising me to work hard for money, my rich dad said, "If you want to earn more and pay less in taxes, you need to have people and your money work hard for you." In other words, my rich dad encouraged me to be an entrepreneur and investor.

Today, workers who save money and invest in a 401(k) plan are the highest taxed people in America. Now, I can hear some of you asking, "Isn't saving money and investing in a 401(k) having your money work for you?"

No -- at least not according to the IRS. A worker's pay is taxed at the highest tax rate possible. So are your savings and income from your 401(k). In most cases, money goes into a 401(k) tax-deferred but comes out as highly taxed ordinary income.

One of the reasons the rich are getting richer is because they have more control over our number one expense: Taxes.

For example, my passive income from real estate can be the lowest taxed income of all. On one of our commercial properties, my wife and I receive approximately $30,000 a month in income -- almost tax-free. When we sell the property, we can legally take the capital gains without paying capital gains tax, which in our state would be 20 percent. Try doing that with stocks, bonds, mutual funds, or real estate investment trusts (REITS). In fact, mutual funds can be a tax trap if you do not understand the rules.

Another example, when we invest in oil and gas projects, we receive approximately a 70% tax deduction and a depletion allowance -- another tax break -- for income from oil and gas revenues. That means if I invest $10,000 in oil and gas, I can deduct approximately $7,000 from my income as well as receive a tax break for income from the sale of the oil and gas.

Obviously, I'm not a tax professional and you should not make any tax or investment decisions based on this brief article. My point is this: If I had followed my poor dad's advice and got a job with a 401(k), there would be almost nothing an accountant could do to protect me from higher taxes. The 1943 Current Tax Payment Act saw to that. Today, employees with a 401(k) work hard and earn less.

The federal government provides the biggest tax breaks for business owners and investors in oil and gas and real estate. Why? Business owners provide jobs and jobs mean employees who pay higher taxes. The economy needs oil and gas so anyone who explores for oil and gas are given big tax breaks. And people who invest in real estate are given big tax breaks because the government needs investors to provide housing. If investors didn't provide housing, the government would have to.

After 1943, people who worked for money lost most of their tax breaks. Now, entrepreneurs and investors get the big tax breaks -- and that's another reason the rich get richer.

**Sportcamper** · 10-13-2005

One day a florist goes to a barber for a haircut. After the cut he asked about his bill and the barber replies: "I'm sorry, I cannot accept money from you; I'm doing community service this week"

The florist is pleased and leaves the shop. Next morning when the barber goes to open there is a thank you card and a dozen roses waiting for him at his door.

Later, a cop comes in for a haircut, and when he goes to pay his bill the barber again replies: "I'm sorry, I cannot accept money from you; I'm doing community service this week."

The cop is happy and leaves the shop. Next morning when the barber goes to open up there is a thank you card and a dozen donuts waiting for him at his door.

Later a Republican comes in for a haircut, and when he goes to pay his bill the barber again replies: "I'm sorry, I cannot accept money from you; I'm doing community service this week."

The Republican is very happy and leaves the shop. Next morning when the barber goes to open, there is a thank you card and a dozen different books such as "How to Improve Your Business," and "Becoming More Successful."

Then a Democrat comes in for a haircut, and when he goes to pay his bill the barber again replies: "I'm sorry, I cannot accept money from you; I'm doing community service this week." The Democrat is very happy and leaves the shop.

Next morning when the barber goes to open up, there are a dozen Democrats lined up waiting for a free haircut

**SWC Bonfire** · 10-13-2005

But, it is strange that you don't actually see/read many articles on wealth, only on debt. Perhaps it is because so few actually take the steps to build true wealth.

**Marcus Bryant** · 10-13-2005

oh?

**SWC Bonfire** · 10-13-2005

Originally Posted by Marcus Bryant

oh?

Ask an informal poll of people under the age of 35 what their net worth is. Most don't know, and a lot will probably be around $0.

**Marklar MM** · 10-13-2005

My net worth is roughly...uh...300 dollars.

. I am getting up there with the likes of Bill Gates and the GOOGLE guys.

**Marcus Bryant** · 10-13-2005

Originally Posted by SWC Bonfire

Ask an informal poll of people under the age of 35 what their net worth is. Most don't know, and a lot will probably be around $0.

True.

**SpursWoman** · 10-13-2005

Originally Posted by SWC Bonfire

Ask an informal poll of people under the age of 35 what their net worth is. Most don't know, and a lot will probably be around $0.

I'm 33 ... and mine is pretty substantial--for a 33 year old anyway.

**SWC Bonfire** · 10-13-2005

Originally Posted by SpursWoman

I'm 33 ... and mine is pretty substantial--for a 33 year old anyway.

Good for you!

Appreciation in home values has a lot of people's net worth on the rise as well. I haven't really gotten a whole lot of help in that department, but I think I got a relatively good value on my house. I was more interested in the land, anyway.

**boutons** · 10-13-2005

"don't actually see/read many articles on wealth, only on debt"

Only a tiny %age of people have net worth (assets exceeding debt), a wealth to worry about, and they don't read magazine articles to manage it. They hire tax lawyers/accountants to avoid/evade taxes.

OTOH, PLENTY of people have debt, so the articles on debt have huge readership.

**SpursWoman** · 10-13-2005

I acquired it from just being born, though ... I inherited a 2400sqft house on a 25,000sqft lot in Alamo Heights with very little debt attached.

I'd have been only a little bit ahead had that not happened, not an awful lot.

**SWC Bonfire** · 10-13-2005

They hire tax lawyers/accountants to avoid/evade taxes.

It's not evading taxes if you have legitimate tax breaks. Basically, the system rewards certain behavior. Why wouldn't you wish to emulate this behavior to increase your net worth?

**Marklar MM** · 10-13-2005

Well, if I go garbage picking for cans, will my net worth increase?

Hey, that sounds like a good idea. Make a good amount of cash. Maybe start up a fake bottle drive.

**SpursWoman** · 10-13-2005

Originally Posted by boutons

"don't actually see/read many articles on wealth, only on debt"

Only a tiny %age of people have net worth (assets exceeding debt), a wealth to worry about, and they don't read magazine articles to manage it. They hire tax lawyers/accountants to avoid/evade taxes.

OTOH, PLENTY of people have debt, so the articles on debt have huge readership.

Having a positive net worth doesn't automatically put you in Bill Gates territory. A significant number of people have a positive net worth...especially older people that have already paid off their homes.

Why are you assuming everyone is irresponsible? Because you are? Having a pretty decent net worth doesn't automatically put you in Bill Gates territory...and learning how to take care of your money and get the most out of it takes a little self-education--which would include reading related articles.

**ElMuerto** · 10-13-2005

Most people are worth more dead than alive.

**boutons** · 10-13-2005

"Why are you assuming everyone is irresponsible?"

why do you think you know what I'm assuming?

**SWC Bonfire** · 10-13-2005

Boutons, do yourself a favor and pick up a used copy of The Millionaire Next Door or The Millionaire Mind.

**Marcus Bryant** · 10-13-2005

boutons has to ask because he sure as doesn't know.

**SpursWoman** · 10-13-2005

Originally Posted by boutons

"Why are you assuming everyone is irresponsible?"

why do you think you know what I'm assuming?

Because you are assuming only a very tiny percentage of people are responsible enough with their money to not bite off more than they can chew. (ie. have postive net worth).

Either they over-extend themselves with credit or they throw away their money on rent instead investing it in a home. Neither situation would be considered responsible financial planning.

I'd think people in those situations would benefit THE MOST from literature on how to manage their finances.

**Marcus Bryant** · 10-13-2005

boutons is right about one thing. There are a class of people who can afford to hire expert advice to minimize their tax burden over their lifetimes and through the lifetime of their children's children. This is why it's almost inevitable that attempts to make "the rich" pay a larger burden ends up costing the middle class more.

There's also distinction to be made between 'income rich' and 'wealth rich'.

**Spam** · 10-13-2005

Poorest 40% own less than 1% of the wealth Wealthiest 5% of population own 70% of the wealth ...

**boutons** · 10-13-2005

SW, go look up "usa household debt", current and historical trends, to see how the vast majority of households have been going in record numbers into record levels of debt, a negative net worth, not "wealth". Scold them, not me.

**jochhejaam** · 10-13-2005

I went from single to married with a family of 6 in eighteen months, so much for wealth.

(wife had 2 children when we married and we had twins 18 months later)

**clubalien** · 10-13-2005

actual debt is good, it is called leveraging in fact the idea of rich dad poor dad is to have money work for you and not to work for money....
using somoneelese money, captial insted of risking yours and investing it for a higher return. isn't a bad thing.

**scott** · 10-13-2005

Originally Posted by clubalien

actual debt is good, it is called leveraging in fact the idea of rich dad poor dad is to have money work for you and not to work for money....
using somoneelese money, captial insted of risking yours and investing it for a higher return. isn't a bad thing.

"Having debt" can be good... being "in debt" usually can't.

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