Wealth comes from knowing what others do not know. — Aristotle Onasis
Have you ever thought that — with all the pervasive fear mongering by our politicians and media alike — we are all living a better life than those who lived hundred years ago, or even 30 years ago?
I know that you are going to look at me — if I am telling this to you in person — as if I am living under a rock for the last four years or so. As oxymoronic it may sound, it’s easier to build wealth now than ever.
I stumbled upon an interesting article recently. Albeit the article is about the economy, it has uncovered facts that are worth pondering about.
1. The unemployment rate for college graduates is 3.9%. For high school dropouts, it’s 13%.
This shows that job market is not that bad as long as you do your part — to invest in your own education for skills that are in demand. After all, only 4 out of 100 college graduates are without work. And, I suspect that some are willingly taking a sabbatical to map out their next career.
2. From 1929 to 1932, the total amount of money paid out in wages fell by 60%, according to historian Frederick Lewis Allen. By contrast, from 2007-2009, total American wages fell less than 5%. What we experienced in recent years was nothing close to the Great Depression.
It’s hard to save when you start making 60% less, but you can’t blame the current recession for not saving more just because you are making 5% less due to the tough economic conditions. For all the hype and sound bytes about the great recession, it only exists if you watch too much television.
3. At the height of his success, Andrew Carnegie’s annual income was 20,000 times the average American’s wage, according to historian Frederick Lewis Allen. That’s the equivalent of about $720 million in today’s economy. In 2010, hedge fund manager John Paulson earned $4.9 billion, or nearly seven times what Carnegie earned in his prime. The key difference: Carnegie made steel to construct buildings. Paulson bought derivatives to bet against them.
These figures reveal an amazing fact — at the turn of 19th century, Carnegie made his fortune from the industrialized revolution; John Paulson made his fortune from betting against what worked for Carnegie about hundred years ago. It proves that you can build wealth by knowing the current trends, and even betting against what once was in demand.
4. In 1914, Henry Ford made the unprecedented move of paying line workers $5 for an eight-hour shift — double the going rate. Adjusted for inflation, that works out to around $14 an hour in today’s dollars. By contrast, a New York Times article broke down an average auto worker’s 2008 salary, including insurance and paid vacation, and came to $45 to $55 an hour.
This fact teaches a fundamental rule of supply and demand. American car makers are less competitive because they are over paying union workers. You can build wealth by creating value in the market place. If you demand more than your true worth then either your employer will go out of business or you will be without work.
5. Five of every six American families earn more than their respective parents did, according to the Pew Economic Mobility Project.
How can you not save more for your retirement knowing that you are likely making more than your parents did? Start with at least 20% savings, and make commitment to increase savings by 3-5% each year by cutting unnecessary expenses like eating out or buying things that you don’t need.
6. A composite hedge fund index has returned 1.3% year to date as of July 11. The S&P 500 returned 8.3% during that time. People call the former “smart money.”
It’s lot easier to research and invest in an index fund on your own due to the information age that we live in. It was much difficult 30-40 years ago to manage your own investments. You can save thousands of dollars in fees, and let that money work for you.
7. According to the Pew Research Center, every one of the eight largest EU nations ranks Germany as the hardest working — except for Greece, which ranks itself as the hardest working. Five of the eight rank Greece as the least hardworking.
This proves that those who overrate their own performance are doomed to fail miserably — Greece can rank itself hardest working, but the rest of the world knows the truth. Those who learn from their mistakes can always do well, always!
8. According to Manpower’s 2012 Talent Shortage Survey, 49% of U.S. businesses report difficulty filling available job openings.
This fact proves that there is no dearth of jobs, if you find a niche skill in demand. For all the political rhetoric about high unemployment rate, it is only 3.9% among those who have a 4 year degree. And, if you are among those with graduate degree, your chance of not finding job is less than 2%.
9. According to analyst JW Mason: “In 2007, [nonfinancial corporate] earnings were $750 billion, dividends were $480 billion, and netstock repurchases were $790 billion.” In other words, businesses paid shareholders nearly double what they earned.
If you invest in 10 or 15 highest quality stocks with high dividend yield, and reinvest your dividend income, you are destined to build wealth. With the advent of the Internet, it’s easier to perform your own research to invest in these safe, reliable securities on your own.
10. According to economist Christina Romer, real GDP per capita in American grew 0.58% a year from 1800-1840; 1.44% from 1840-1880; 1.78% from 1880-1920; 1.68% from 1920-1960, and 1.82% from 1960-1991. We not only grew richer, but at an increasing rate.
This proves that — despite all the gloom and doom — Americans are getting richer since early 1800s. Nonetheless, most Americans don’t have more than few month worth of savings to survive income loss.
It’s not the economy or the crisis in Europe to blame for not saving for your future. They key to build wealth is to find a high paying job and live way below your means to save 40-50% for 5-10 years. I told you so — It’s easy to build wealth now.
Man was born to be rich, or inevitably to grow rich, through the use of his faculties. — Ralph Waldo Emerson
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