Monday, January 20, 2014

Time and Money

Do you want to be rich?

I am going to let you in on a secret on how the richest Americans became wealthy.

You might think that inheritance was the secret formula for most people.

However, the vast majority of rich people became wealthy simply by their work effort.

You have an even better chance of becoming wealthy if you marry someone else that is working full-time and can stay married and avoid divorce.  That way you leverage your resources while also limiting your individual living expenses by sharing household expenses.  However, that is still not the ultimate secret.

I wrote about some of these "secrets" last March in my post, "Income Inequality and Individual Responsibility" where I pointed out that if you simply graduate from high school, work full time and marry before having children your chances of being poor are infinitesimal.

Kevin D. Williamson of National Review Online looks at the issue of rich versus poor and comes to a similar conclusion. Despite the popular narrative, the wealthiest Americans are not living on trust funds that were handed to them along with a silver spoon when they were born.   They got rich by simply working hard for it.  In fact, wealthy households contain on average more than four times as many full-time workers as do poor households.  The fact is that there are not many "idle rich" folks in this country.  There are, however, a lot of "idle poor".

There is a reason that money earned from work accounts for a relatively large share of the holdings of rich Americans: They work more — a lot more. While Census Bureau data document a very large gap in the prevalence of college degrees among the top 20 percent vs. the bottom 20 percent, there is an even larger and more significant gap — 60 percentage points — between full-time employment for householders in the top income group vs. the bottom income group. There is, to be sure, such a thing as the working poor, but the most salient characteristic of poor households is the lack of full-time workers in them. For the bottom income group, there is an average of 0.42 earners per household, with 68.2 percent of householders not working at all, as opposed to 1.97 earners per household and only 13.3 percent not working for the highest income group. 

The highest-income families also got there by being married.

Family matters. Not surprisingly, 78.4 percent of those highest-income families were married couples, as opposed to 17 percent for the lowest-income group. What this all means in brief is that the highest-income families are composed almost exclusively of two-earner households, the overwhelming majority of them married couples. Those who are inclined to see public policy mainly through green eyeshades may sniff at the social conservatives and their quaint worries about marriage, but there is a very strong connection between how we conduct our family lives and our economic outcomes — the very word “economy” derives from the Greek term for household administration, οἰκονομία.

Williamson also found that in rich households inherited wealth constituted a smaller share of their total assets than in middle income and poor households.

Wealth transfers — inheritances and gifts combined — constitute a small part of the holdings of the rich, whether you define “rich” in terms of income or net worth. For the top income quintile, gifts and inheritances amount to 13 percent of household wealth, according to research published by the Bureau of Labor Statistics. For the top wealth quintile, they amount to 16 percent. For the hated “1 percent,” inherited wealth accounts for about 15 percent of holdings. 

And the percentage of wealth passed on from generation to generation among the rich has actually been decreasing for a number of decades.

Contrary to the story the Left likes to tell about economic inequality in the United States, those numbers have gone down over recent decades — by almost half for the wealthiest Americans. Meanwhile, inherited money makes up 43 percent of the wealth of the lowest income group and 31 percent for the second-lowest. In case our would-be class warriors are having trouble running the numbers here, that means that inherited money on net reduces wealth inequality in the United States (measured as a ratio) rather than exacerbating it; eliminating inherited wealth would have approximately twice as much of a negative effect on modest households as on wealthy ones. (emphasis added).

Along with Williamson's article I also came across this interesting infographic on the "Habits of the World's Wealthiest People" that was put together by Nowsourcing.  This work was based on Thomas C. Corley's study of the daily habits of 233 wealthy and 128 poor people.

If you don't believe it takes work to get to the top of the economic ladder just consider the differences in the traits between those that were wealthy and those that were poor.  Almost every one of these traits requires some work or effort on the part of the individual.  It does not necessarily occur naturally in the human condition.

                                                                    Wealthy                    Poor

Maintain a to-do-list                                         81%                        9%
Wake up 3+ hours before work                        44%                        3%
Listen to audio books during commute            63%                        5%
Network 5+ hours or more each month           79%                       16%
Read 30+ minutes or more each day                88%                        2%
Love to read                                                        86%                        26%
Watch 1 hour of less of TV everyday                 63%                         23%
Believe good habits create opportunity             84%                         4%

The reality is that the real secret of the rich is that they make better use of their time if you look at the data above.

A loyal BeeLine reader recently sent me a link to a short book written in 1910 by Arnold Bennett entitled, "How to Live on Twenty-Four Hours a Day" that really drove this point home to me.

It takes about 30 minutes to read the piece but it is a good reminder that time is the most valuable of all commodities.  And nothing has changed with regard to time in the last 100 years.  A lot has changed in the world since then but we still have the same amount of time available to us each day.

Philosophers have explained space. They have not explained time. It is the inexplicable raw material of everything. With it, all is possible; without it, nothing. The supply of time is truly a daily miracle, an affair genuinely astonishing when one examines it. You wake up in the morning, and lo! your purse is magically filled with twenty-four hours of the unmanufactured tissue of the universe of your life! It is yours. It is the most precious of possessions. A highly singular commodity, showered upon you in a manner as singular as the commodity itself!
For remark! No one can take it from you. It is unstealable. And no one receives either more or less than you receive.
Talk about an ideal democracy! In the realm of time there is no aristocracy of wealth, and no aristocracy of intellect. Genius is never rewarded by even an extra hour a day. And there is no punishment. Waste your infinitely precious commodity as much as you will, and the supply will never be withheld from you. No mysterious power will say:—”This man is a fool, if not a knave. He does not deserve time; he shall be cut off at the meter.” It is more certain than consols, and payment of income is not affected by Sundays. Moreover, you cannot draw on the future. Impossible to get into debt! You can only waste the passing moment. You cannot waste to-morrow; it is kept for you. You cannot waste the next hour; it is kept for you.
We never shall have any more time. We have, and we have always had, all the time there is. 

How did the rich get what they have?  The secret really is how they used their time.

They continued going to school instead of standing on a street corner.

They planned a to-do list instead of doing nothing.

They got out of bed and starting doing something rather hitting the snooze button.

They believed that success came from good habits rather than waiting for good luck.

They waited to get married before they had children with someone.

They worked and saved rather than borrowed and spent.

They made conscious choices on how they spent their time and lived their life.

No one gets more or less time than anyone else on this earth.  To be successful you have to use that time wisely.  That is the ultimate secret of success.

It is a lesson that everyone should consider more fully.  And with time, it is never too late for anyone.

The chief beauty about the constant supply of time is that you cannot waste it in advance. The next year, the next day, the next hour are lying ready for you, as perfect, as unspoilt, as if you had never wasted or misapplied a single moment in all your career. Which fact is very gratifying and reassuring. You can turn over a new leaf every hour if you choose. Therefore no object is served in waiting till next week, or even until to-morrow. 

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