Why Is Getting Rich So Difficult?!

What Is Rich?

Although most people dream of becoming rich, most of us have never given two thoughts as to what rich actually is! It’s probably fair to say that most picture being able to buy luxury items like yachts and fast cars without batting an eye. That is certainly on the rich scale but where is the threshold that divides ‘not rich’ and ‘rich’?

Everybody will have their own definition, but we define rich as the ability to live comfortably without having to work, as your lifestyle is funded by assets you own – what we call financial freedom or financial independence. High levels of financial wealth provide wealth of time and better health (in theory).

Why A Job Probably Won’t Make You Rich

We’ll keep this section brief as we’ve done enough job bashing over the years, but the fact of the matter is if you want to become rich it’s unlikely that a job will suffice.

Most jobs don’t remunerate you enough to achieve wealth in a short amount of time. Even in a well-paid job it often takes a few decades to squirrel away enough to quit work. Having a high income without free time is not rich by our definition.

Moreover, the chances are that you didn’t start out in that high-paid job. It usually takes a significant amount of time working your way to the top, so even when you achieve the job that pays well it will take years of continuing to work before you can enjoy the fruits of your labour.

Doctors for instance spend around 10 years studying and training before they get a real doctor’s salary. After a decade, their financial journey is only at step 1.

So, in essence while you can eventually become rich slaving in a job, it will take more time than most people are understandably willing to give.

Can Investing Make You Rich?

Investing in the stock market is often considered to be the only sure-fire way to get rich by a lot of people. But there are two major problems: Most people are not investing enough, and the compounding effect takes years if you don’t have much money to start with.

Here’s a quick and realistic example of building wealth through investing:

We think financial freedom is achieved for a single person once they have around £30,000 annually in passive income, and therefore need an investment pot of around £750,000. This can be achieved by investing £500 a month, earning 8% returns, less 3% inflation, increasing the monthly contributions in line with inflation, and investing for a little over 33 years. And herein lies the problem; that’s a long game for most people to play.

This leads many people to try and take shortcuts, which only worsens their financial position. Short-term trading without the skills to do it will likely hurt you. We’ll probably get hate for this one but speculating on crypto or meme stocks is essentially gambling. It might make you rich…. possibly, but it’s not comparable to a safe, steady, and boring index investment that has a long historical record of success.

To sum it up, investing will make you rich eventually, or at the very least will make you richer and more financially comfortable. And additionally, investing is essential for staying wealthy – no matter how you make your money, whether it’s a job, a business, an inheritance, or whatever, that money needs to be invested otherwise you might not be rich for very long.

You’re Too Busy Firefighting To Get Rich

If jobs don’t cut it, hopefully we’re in agreement that owning a business is your best chance of getting rich in a short timeframe. However, starting a business seems like an impossibility for many because the journey is fraught with problems and risks.

The biggest problem of all is most people are living permanently close to the breadline and are too busy firefighting on a day-to-day basis. Their focus is on covering their immediate living expenses, such as keeping a roof over their family’s heads, so that they have zero spare time to ever invest in a business or side hustle that ultimately could change their life.

If you’re working a full-time job or even two jobs just to survive, even if you have time in the evenings, your best mental energies have already been spent. If you’re going to build a successful business, it’s going to require enough of your quality attention.

You might even have other responsibilities, like children or elderly parents to care for, which makes working on a business near impossible.

Very few people are willing to put in the work and make the sacrifices. When you’re young it takes a special kind of person to neglect friendships and relationships to focus their time on a business, especially if they’re working another job in the day. As a parent would you be willing to miss your kids Sunday league football game or school play? Most would consider that too much of a sacrifice!

One solution to this problem is to concentrate on your career a little longer and work towards a promotion and a payrise, and then with the increased pay aim towards going part time to perhaps a 4-day week. This new free time can be reinvested into a side hustle.

I did this but Ben (MU Co-founder) went even further, going from 5 days to 4 days to 2 days to none. But he also invested in rental property, which gave him a small secondary income to supplement my reduced salary. He established the rental properties with a mixture of existing savings and remortgaging his home mortgage to extract a significant wad of cash. Learn more in this post.

Need Money To Make Money?

In an extension to the previous point, most people don’t have the finances to fund a start-up business, but lack of finances may not be the dream killer in the way you think it is. You regularly hear the excuse from those that never do it, “that it takes money to make money.”

Having ourselves started a small business we can safely say this isn’t completely true although money does make it easier and certain types of businesses might be unachievable without a larger budget. Although, even when money is required, a good business will attract funding from outside sources if you make it happen. But crucially many businesses are possible on a shoestring.

A lot of businesses can be started with just a tiny sum of money and a lot of your time. The real financial problem is how to find money to live on while your business is in its infancy and not producing enough profit, if any.

Personally, we ran our business as a side hustle until it started producing a moderate income. Now that we’re running the business full-time, we have no choice but to draw a salary and dividends, but we know this is financially handicapping our business, hence why it makes getting rich so difficult.

If we happened to be on Dragons Den, we would be condemned for doing this, but we have no idea how the Dragons expect the entrepreneurs to live without any income.

Psychological Fear Of Losing Money

Most people fear losing money, which is why they avoid investing. There is a culture in the UK, encouraged by poor education, that pushes people to take safe harbour in a bank account rather than risk their money by investing it.

And if investing in public stocks is seen to be too risky, then spending money on a business is close to impossible for most people mentally. Even when you opt for starting a business on the cheap it will require a little upfront investment and reinvestment of profits.

It’s understandable to fear start-ups as each and every penny spent could be throwing money away if it doesn’t result in increased revenues. The worse your financial situation the more difficult it becomes to make the required investments.

No Mentors & No Connections

Wealthy people seem to be as rare as unicorns. People tend to hang around with similar people to themselves, which makes it difficult if you’re trying to break into the elite group.

If you want to achieve something in life, whatever that might be, it’s wise to take note of how other people achieved what you want and to replicate their success. Whatever you’re trying to do, someone has walked a similar path before.

A mentor will be able to show you the ropes, will guide you, and will likely be able to connect you with the right people. If we use another Dragons Den example, many of the entrepreneurs give away huge amounts of equity – not necessarily for the money but for the experience, guidance, and connections of the Dragons. The Dragons might be able to get them a crucial meeting with a key buyer that could supercharge their business overnight.

If you’re like us and unfortunately don’t have any personal mentors, then take advantage of the experts that are publicly operating in your space. Everyone these days is sharing their knowledge online. Love him or hate him, the best mentor available to us was Robert Kiyosaki, who spoke to us through the book, Rich Dad Poor Dad.

Wealth Is In Houses

In this post we reported that most wealth in the UK is stored in property and pensions. We all know that property prices are increasingly becoming more expensive and that the housing market is excluding those at the bottom, which only widens the rich-poor divide.

It’s not uncommon for someone to say that their house earned more than they did in any given year. Although there are some advantages to renting, generally you will be better off financially if you own property.

The longer you are not on the property ladder the more difficult it becomes. If your salary goes up 10% from £25k to £27.5k, but house prices also go up 10% from £250k to £275k, then your goal is forever out of reach because banks won’t lend to you beyond a certain salary multiple.

Lifetime ISAs are potentially a good way to save for a house deposit as the government will top up your contributions by 25%. Check out the Lifetime ISA guide for more info and the best providers.

Business Taxes

Tax is obviously necessary to run a country, but small start-ups need tax breaks to get off the ground, which are few and far between.

Individuals get a personal allowance, which protects their first bit of earnings from being taxed, but limited companies don’t get a tax-free allowance. They incur 19% corporation tax from the first tiny bit of profit, which is demoralising. You’re trying to get the wheels turning and the government are pushing you back in the wrong direction.

Has Everything Already Been Invented?

Now for a couple of counter points. Funny man Karl Pilkington said, “we’ve run out of new inventions cos everything has been invented.” He said it was so much easier in the past because as soon as you needed something, that was a new invention as it didn’t exist yet. In one of his TV shows he said something along the lines of if you have a bowl and wanted to scoop food from it you would have invented the spoon. It was that simple!

Karl is a comedy genius but he’s forgetting in this case that today the rate of innovation is only increasing, which means it must be getting easier. You may well be watching this video on a little device that fits in your pocket, can communicate with anyone on the planet and gives you the world’s information at your fingertips.

Access To Suppliers, Customers, Jobs, And Information Is Better Than Ever

Those inventions – being a phone and the internet – have also made the world smaller. For those that choose to, you can locate a supplier or manufacturer who could bring your idea to life. This is a quick Google search away, whereas in the past we can only imagine this came at great effort and expense.

You can take niche ideas and reach your customers globally. Ideas that were impossible before because of a small local market that didn’t offer enough demand have now become viable. No longer do you have to waste money on untargeted advertising, which ultimately failed, when you can now pinpoint your exact target audience… and it’s only getting better.

On the jobs front, we all have better access to education than ever before. Although, we still think there is a long way to go in making education affordable it’s undeniable that higher education boosts earnings as evidenced by data provided by the ONS.

For those educated to an A to C grade GCSE standard, gross annual earnings level out at around the age of 30 at an average of £19,000. For graduates, their annual income rises at a rapid rate as they get older, before plateauing around the age of 39 at an average of £35,000. The key to turning this into wealth though lies in investing what you’ve earned.

Why do you think getting rich is so difficult? Join the conversation in the comments below.

Written by Andy

Featured image credit: Fida Olga/Shutterstock.com