The Rich get Richer, A Self Perpetuating Cycle

You know the old saying "The rich get richer, but the poor stay poor"? Chances are likely you've heard this saying, or some variation of it before.

So here's the thing about wealth. Once you have it, unless you do something stupid with it, you are pretty much guaranteed to get wealthier over time.

Consider this:

Imagine you own your own home and have $1 million in stocks.

You own the home so you still need to pay land taxes, insurance, and repair bills... but you own it, so you're not paying to rent or lease. It is yours to keep.

Plus you own $1 million in stocks. If they are Dividend Stocks then you might be earning perhaps 5% annually on the value of those stocks. So $50,000 per year, just for owning the stocks.

That $50,000 is more than enough to pay for your land taxes, insurance, repair bills, etc... plus your food, electricity, etc... And you would still have money left over. You don't even need to work and you're still making money.

Add to that a part time job for $20,000 per year (you know, as something fun to do since you don't need to actually work like a normal person) and even with government taxes you've got plenty of money.

Meanwhile let's do the same math for a poor person living in a big city like Toronto or Vancouver.

You are working TWO part time jobs to make ends meet, earning $40,000 per year, minus taxes.

• Your rent is $2000 so deduct $24,000 per year.
• You don't own a car so you're taking the subway regularly. In Toronto a 12-month pass costs you $143 per month, so deduct $1,716.
• You still need to pay for internet, phone bills, electricity, food, etc. So deduct $400 per month ($4800) for all of that.

So you've got $9,484 left before income taxes.

And keep in mind that is someone who manages to earn $40,000 per year working two part time jobs. In order to do that those part time jobs would need to be 40 hours per week, 52 weeks per year, at $19.23 per hour, with zero sick days, no vacation, etc.

The working poor meanwhile aren't making that much. $19.23 per hour for 40 hours x 52 weeks would sound pretty nice to some people because at least they're getting paid a living wage.

Meanwhile a vast number of Canadians are making $14.35 or less. In Ontario the minimum wage is $14.35, but the minimum wage varies by province.

Plus good luck finding two part time jobs that provide 40 hours of work per week without a ridiculous schedule. More likely a person will be working 30 to 35 hours because the schedule fluctuates based on how often their boss needs them to cover someone else's shift.

So $14.35 x 35 hours x 52 weeks = $26,117.

Oh look. Don't bother having kids. You couldn't afford the apartment + expenses. Instead you'll be living in an apartment you share with a roommate and you cannot afford to have children.

If you want to be living, actually living, then people need to demand the following:

#1. Full time work. 40 hours per week. Anything less than full time isn't worth it unless they're paying proportionally a lot more.

#2. A minimum of $20 per hour. Otherwise you will be perpetually poor.

#3. Two Weeks or more Paid Vacation. So you don't burn out doing a job you hate.

People need to be demanding better paying jobs, better hours, and more vacation time. Otherwise it isn't worth their time in the long run.

This is fundamentally a problem which separates the rich from the poor. Decent wages, the ability to own property, and the ability to invest their excess wealth in order to create more wealth.

A wealthy landowner plus stock investor doesn't even need to work in order to make money. Their stocks are doing the work for them. They could spend their life being an artist, a dancer, an actor, etc and never make a lot of money, and still be financially better off than the working poor thanks to the fact that they already own land, don't pay rent + have over a $1 million in dividend paying stocks.

They could take the extra $24,000 they are saving from not having to pay rent and put that into buying more stocks. After 40 years they would have closer to $2 million plus whatever increase valuation of the stocks due to them going up in value over 40 years.

Imagine you bought just $1000 USD in McDonald's stocks in October 1981. Those stocks today, almost exactly 40 years later, would be worth $30,188,890 USD, plus you would have gained the dividends for 40 years. The dividend yield of MCD is currently 2.26%, which amounts to $682,268.91 per year currently.

All that just by investing $1000 back in October 1981. MCD is a great example of a darling stock that really returned on the initial investment.

Anyone sitting on $30 million worth of MCD stock is laughing all the way to the bank.

And thanks to the way governments tax stock investors, this is unlikely to ever change. The rich are going to continue to get richer.

While the working poor, eg. the people working at McDonald's for minimum wage, continue to pay rent while the rich get richer off of the fruit of their labours.

It is an incredibly unfair system, but the sooner YOU realize that you can become one of the people making money and creating wealth for yourself, the sooner you can become one of the people who is making money off of the poor instead of just being poor.

If you want to stop being poor you should sign up for a WealthSimple account today and get 2 free stocks.

Notes

Now I know some people are going to complain about $2000 rent/month. That is pretty normal for a 3 bedroom apartment in a major city, which is what you need if you're raising a family. Roughly 40% of Canadians live in Canada's 10 biggest cities/regions, and due to higher rent and low wages many of them are likely to be the working poor.