Private Wealth in America
Few years back, a private study was done in USA on the private wealth of Americans. At that time, the Value of total private wealth was approximately $ 22 Trillion. And Millionaires own approximately half of this wealth, meaning around $ 11 Trillion.
The Total personal income for the same period was estimated to be about $ 2.6 Trillion. Millionaires account for only about 30% of the Total Income or $ 0.78 Trillion. This means that millionaires as a group consume the equivalent of just 7% of their total wealth every year.
How Smart the Rich (Millionaires) Are?
Since their early years, they know how to maximize consumed income and pay little or avoid taxes. The key of avoiding taxes is that to earn in Capital Gains & Valuations of Assets.
If you want to win the game of money, then you have to play this game like the rich. Which means, you have to make money in valuations and capital gains just like the rich. Then and only then, will you be able to avoid taxes and build significant wealth.
Rich people buy and hold any assets typically for several decades. And thus, over the time, they become extremely wealthy. All of those years they make money as capital gains, which only remains “On Paper” gain as unrealized income only. And that’s why they don’t have to pay any taxes for this unrealized income.
The key of avoiding tax; you acquire some asset and hold that asset for years. This is the proven way of becoming wealthy over time.
American Wealth: Own More, Consume Less
According to one survey on around 3.5% USA Millionaire Households, these households account for more than half of the personal wealth. But the same people account for less than 30% of the Total American Income.
What is the logical reason behind this?
Well, since most of these people own some kind of business and they buy assets out of their businesses and they keep re-investing the profits of their businesses in buying more and more assets.
All of them own large volume of stocks. And they buy stocks to keep them forever. They sit on these stocks. And hold them for decades. And this is the reason why they pay less in taxes and accumulate more money over the time.
They consume less in income and maximize their Capital Gains and valuations of their businesses. While most of high income groups of people consume more income and thus they have to pay more in taxes.
Rich people typically acquire more assets and keep these assets for several decades. And this is the reason they become richer and richer over the time. While people who live a high status lifestyle have to show more income to fuel their expensive life styles and that’s why they have to pay more in taxes and thus they fail to accumulate significant amounts of wealth.
Therefore, the key of becoming wealthy is that you acquire assets and hold them for years and decades. Alternatively you can create your own Assets out of scratch (Such as Businesses, Books, Music, Intellectual Properties , Websites, … etc … ) and keep that asset for years and become wealthy.