“Whoever has has will be given and will have more, but whoever does not have even what he has will be taken away.” – Matthew 13:12
From biblical times, before the advent of large-scale capitalism and big government, people understood that gifts were given to the rich and taxes were collected from the poor. and impoverished people fall into a downward spiral.
“The rich get richer and the poor get poorer,” is a quote by poet Percy Bysshe Shelley. It describes the positive and negative feedback loops that rich and poor people experience most of the time. It is a natural phenomenon that people face in the real world. There are many ways to break the vicious cycle of the free market economy through education and free enterprise.
The 5 Laws of Gold from the best-selling book The Richest Man in Babylon is a great framework for explaining why the rich get richer and the poor get poorer. Let him examine the principles responsible for this one by one.
five laws of gold
The 1st Law of Money: Gold comes willingly and in increasing amounts to those who contribute more than one-tenth of their income to create a fortune for themselves and their families for the future.
Saving is the beginning of wealth building. The rich get richer by increasing their capital as their assets increase in value. Poor people become poorer and poorer as wages lose their purchasing power over time due to inflation, leaving them unable to save extra money to turn into investment capital for their living expenses.
The way out of poverty is to raise wages above spending to create room for savings. As your savings grow, you need to convert them into investments and assets to grow your wealth. Low wages and high cost of living keep people in poverty. Even high earning incomes that spend all they earn are technically bankrupt as they have little to no net worth and no potential debt.
Second Golden Law: Gold multiplies like a herd in a field, working diligently and contentedly for the wise owner who finds profitable employment.
Savings can grow and multiply wealth. The rich get richer through the compound growth of their investments. They can own stocks, mutual funds, real estate, businesses, and cash flow assets. The rich put their money to work to get richer through capital gains and cash flow.
Poor people’s only cash flow is to sell their time and effort for a paycheck. They can’t take advantage of their time. Their jobs, careers, and ability to work can depreciate their assets. The poor get poorer for less because technology and competition devalue the labor force. Having an up-and-coming mobile carrier that increases your income can help with this.
Third Golden Law: Gold adheres to the protection of its prudent owner, who invests it under the advice of a wise man in its handling.
Be patient and take a long-term view. The rich have professional advisors to manage their wealth to optimize return on capital and minimize taxes. Wealthy people know how to manage their money and how to hire the right people to do it if they want to devote themselves to their business or high-income career. Seek to grow over time.
Poor people often listen to the advice of friends and family who don’t understand how money works. Never take financial advice from a bankrupt person. Poor people would be wise to look at the examples of people who are good at personal finances and investments and follow what they are doing for practical lessons. Model financially successful people instead.
The 4th Law of Gold: Gold moves away from those who invest in unfamiliar businesses and purposes, or who are not endorsed by those skilled in their management.
Invest in what you know and understand. Do not invest in schemes not recommended by experienced investors.“easy come easy go” It’s a formula for staying broken.
Money’s 5th Law: Money runs away from men who drive it to impossible returns, follows the glamorous advice of scammers and schemers, or trusts money to its inexperience and romantic desires in investing.
Avoid get rich quick and very aggressive wealth creation strategies. Poor people fall into the trap of getting rich quickly by being duped by gambling and scammers and end up losing even a little money. There’s nothing quite like a social media retail trader account manager. Only registered money managers can invest other people’s money. People are late entrants to speculative bubbles such as Bitcoin, cryptocurrencies, and NFTs, and latecomers lose money.
Most penny stock traders on social media engage in pump and dump scams. The best traders and investors of all time averaged around 20% annual returns. That’s the reality. Anything more than that is a scam. Zero risk guaranteed returns are always a scam. There are real deals and investments that will benefit people, but you shouldn’t attempt them without first learning how to create your own system with an edge.
“When money is easy to come by, no one will put it in your pocket.” ―Jesse Livermore
Wealth building is a long-term process, and a complete set of steps must be followed to become rich.
“The game of speculation is the most uniformly fascinating game in the world. It’s not a game for them, they’re going to die poor.” ―Jesse Livermore
Conclusion
The Five Golden Laws are a shortcut to understanding the principles of why the rich get richer and the poor get poorer. There are other principles such as education, network effects, and geolocation, but the five principles above are the ones you try to fix first to get your money flowing in your direction.