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The Rich Always Get Richer In A Capitalist Society

9 February 2010 One Comment

To start this article, let me say that I’m 100% a capitalist.  I believe it is the best economic way that the most people gain the most.  I believe in the power of millions of individuals making individual decisions versus central economic planning.  With that said, in this system the rich always get richer.  Many of you will use that as the reason why capitalism is bad.  But, why is this a negative result?  I don’t think it is.  Let me explain further.

You Need Capital To Make Money

In capitalism, capital is king.  In order to invest, start a business, whatever, you need capital.  The problem is that due to our over-consumption culture, nobody has capital.  Because every body is in debt and has no capital, instead of working to get out of debt and build up savings to be used as capital, many people choose to blame the system (capitalism) and demand entitlements and other things.

You Lose Ground Each Day You’re In Debt

The debtors in a capitalistic society are unable to build wealth.  As Jacob at ERE explained in this great post, getting out of debt merely gets you back to ground zero, to the starting line.  I’m not diminishing the great value of getting out of debt.  I commend anyone who turns the corner and gets out of a huge debt hole.  You absolutely need to get out of debt.  But, understand that getting out of debt is just step 1 in the journey to build wealth.  Everything is on hold until you’re out of debt.

When you have assets, your money is working for you.  When you have liabilities or debt, your money is working against you.  Wealthy people have assets.  Poor people have liabilities.  In order to make progress you need to eliminate the liabilities and start building assets.

What To Do Now

  1. Make a plan to completely get out of debt – Eliminate your liabilities
  2. Start building your assets – whether it is stocks, bonds or a business – I’d recommend not including real estate in your asset list – it is an asset, but its your residence and is not cash flowing.
  3. Monitor and tweak your game plan over time – how are you coming along?

One Comment »

  • blogc2011 said:

    I commend anyone who turns the corner and gets out of a huge debt hole. You absolutely need to get out of debt. But, understand that getting out of debt is just step 1 in the journey to build wealth. Everything is on hold until you’re out of debt. Steamer's Carpet Care