How Wealthy Workers Use Every Paycheck To Get Richer
Written by
John Csiszar
Edited by
Chris Cluff
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There’s no denying that it’s easier for wealthy people to grow even richer, simply by virtue of the fact that they have more money to begin with.
When you have $1 million, for example, you can earn $50,000 in a year from a simple high-yield savings account at current rates. If you’re starting with only $10,000, on the other hand, you’ll earn just $500.
But, in addition to the simple mathematics, there are certain strategies that high-earning workers follow to generate even more wealth. Here’s how wealthy workers use every paycheck to get richer.
They Max Out Their Retirement Plans
Beginning savers might set aside 10% of their paychecks for their 401(k) plans, but wealthy workers are in a position to really maximize their retirement plan benefits. The maximum allowable salary deferral contribution to a 401(k) plan is a whopping $22,500, or $30,000 for workers age 50 and older.
At $30,000 per year, a wealthy worker could sock away $450,000 just between ages 50 and 65. In most cases, their employers would be kicking in matching contributions of thousands of dollars every year as well. Between all of this money flowing in and the effects of tax-deferred, compound growth, it can be relatively easy for a wealthy worker to build a nest egg of well over $1 million after just 15 years of contributions.
They Turn Their Income Into Investments
One of the many ways that “the rich get richer” is that they use their income to generate even more money. Investing is a key step in this process. Rather than spending their money as it comes in, or even keeping it in a savings account, most wealthy workers actively invest their paychecks.
While this is a strategy that many workers employ, it generally involves some type of sacrifice that already-wealthy workers don’t necessarily have to make. Rather than trimming their budgets in one area to be able to afford saving and investing, wealthy workers generally do not have to sacrifice anything to invest their money. This allows them to both keep their current lifestyle and build additional wealth at the same time.
They Own Rental Properties
Passive income — often in the form of rental property income — is one of the cornerstones of wealth generation in America. But it usually takes capital to get started.
A wealthy person earning a big paycheck might be able to slice off $20,000 to $50,000 to put a down payment on a rental property and immediately begin earning income. But the average-earning American might have to save up for years to be able to afford a down payment on a rental property.
Meanwhile, wealthy workers can use that passive income to either buy additional properties or even flip out of properties, book their profits and move on to the next investment opportunity.
They Invest in Their Businesses
According to some studies, roughly two-thirds of millionaires own their own businesses. Rather than working for a person or a company who benefits many times over from the fruits of their labors, many wealthy workers have to answer only to themselves. They reap 100% of the rewards of their own work, and they generally continue to reinvest their earnings into their own companies.
They Take More Risks
In the investment world, you can’t generate significant gains without taking on at least some level of risk. Wealthy workers are in position to take on more risks without having to worry about the dire consequences that may affect those who have less money.
If you’re just starting to invest and you take the wrong risk, it may take you years to recover financially. But if a wealthy worker loses $20,000 in a bad investment, that person likely has another $20,000 to back it up. If just one of every 10 risks the person takes turns out to be a big winner, the person’s wealth grows even more. Workers with more limited resources might not be able to afford taking 10 big risks in search of big winners.
The Bottom Line
Wealthy individuals have a whole different approach to getting richer than those who are earning just an average income. While some of these strategies may not be as effective — or even possible — for those who earn less money, they are a good demonstration of how the rich get richer. With a dedicated approach to saving and investing — and/or a successful climb up the corporate ladder — there may come a time when you too can use the ways of the wealthy to gain even more riches for yourself.
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