An interesting quote from my second round of reading goes: To build wealth, minimize your realized income and maximize your unrealized income. This means that to build wealth, people need to be focussed on putting more of their money into "unrealized" income, which comes in the form of forms of capital appreciation. This section analyzed how people are too quick to spend their immediate, or realized incomes, which means more taxes. Studies show that the overwhelming majority of "millionaires" pay a much smaller fraction of their income in the form of taxes than people who aren't millionaires. To do this, rather than spending money, they allow their money to appreciate in the form of liquid currency. They allocate a large portion of their incomes to stocks and bonds, as well as other nontaxable municipal funds. Thus, the government is not able to take as much from high earners. Oppositely, people with much lower incomes who are quick to spend their money as a means of "escaping" from life as a lower-middle class person, are the ones who end up paying through the nose when it comes time for taxes.
Another interesting point made by the author is how people who don't feel that they have a lot of money, have many opportunities to change this, but are influenced by society to remain poor. An interesting example given by the author is based on an interview with a husband and a wife that he interviewed. They were poor, living paycheck to paycheck with no immediate assets. Between them they both smoked three packs of cigarettes per day. They smoked from forty-six years. This combined with the price of cigarettes means that they spend over $33,000 in their lifetime on cigarettes. Now had they invested that money in the stock market (index fund), they would have accumulated over $100,000. Had they invested this money in Philip Morris, after forty six years they would have accumulated over $2 million. This interesting study shows just how much of a difference seemingly minute purchases make, and how simply changing where that money goes can lead to huge capital gains.
It's so hard to think in terms of long term investments, but, as you point out, it's the key to wealth. It's also hard to realize that wealth is for everyone, not just the super rich. For me, this is a relatively new concept. I hope you find a way to use some of these tips.
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